The implementation of a health score is becoming more and more common among SaaS editors. Sometimes limited only to product usage or the feeling of the CSM, the concept is not always well understood. In this article you will find the definition of a Customer Health Score and several good reasons to look into this strategic subject!
Definition of a Customer Health score
A customer health score is an indicator of a customer's health and future loyalty. The lower the score, the higher the risk of churn; the higher the score, the healthier the account, the more likely it is to renew its contract and to subscribe to new options (upsell). It is therefore a major indicator for managing a customer portfolio.
At Skalin, the health score is summarized by a score from 1 to 10. The lower the score, the higher the risk of churn. From 1 to 3, the customer is considered to be at risk (red color code); from 4 to 6, the customer is considered to be mitigated (yellow color code); from 7 on, the account is considered to be healthy (green color code).
Why implement a customer health score?
The purpose of setting up a health score is to help Customer Success teams to easily identify accounts that require attention. Ultimately, the goal is to be proactive to maximize retention. It is therefore a pure customer loyalty tool!
CSM often work in a hurry and sometimes lack the time to manage all clients properly. They tend to respond to the requests of the person who speaks loudest or the last person to complain. However, these are not necessarily the ones who present a high risk of churn. On the other hand, they are the ones who take up most of the team's time, leaving the silent customers aside. And by the time you realize that they are disengaged, it is usually too late to react.
A health score helps Customer Success teams to take stock and be more proactive with their clients. It allows to place "probes" on a certain number of indicators, which are continuously analyzed and combined to get a precise idea of the health of the accounts. It is an anticipation tool that allows to act and guarantee a low churn.
Combined with other mechanisms such as alerting or automated scenarios (Playbooks), a health score can become a powerful operational lever.
Here are some figures to illustrate how retention is a strategic issue for any SaaS company:
Retaining an existing customer costs on average 9 times less than acquiring a new one according to a 2018 SaasX study.
The probability of selling to an existing customer is 60-70% while the probability of selling to a new prospect is 5-20%.
According to Bain & Company, increasing retention by 5% can increase profits by 25-95%.
If you are still not convinced, you can download this little calculator provided by Segment. It shows that, after 5 years, a company with a churn of 2.5% will have a cumulative turnover 50% higher than its competitor with a churn of 5%!