CUSTOMER HEALTH SCORE IT IS NOT A GOOD MEASURE OF CUSTOMER HEALTH.
OVERVIEW
Customer Health Score is it is not a good measure of Customer Health.
It is a measure of the Vendor's belief that the client will renew, up-sell, or cross-sell.
The measures devised are of course useful but we need to test how important they are in regard to client churning or not.
THOUGHTS
Many learned folks within the industry? Rather than dropping straight into the KPIs that may impact the likelihood of churning, let’s step back and ask the simple questions first.
Question: Why do clients churn?
Answer: They do not want to give you their money (or time).
Makes sense right? It’s about money, time, and value.
Question: Why do these churning clients not want to give you their money or time.
Answer: Their money provides greater return elsewhere in their business.
From here we can start to understand why a client churns. If the cost of the software solution does not deliver on the value the client wants to see e.g. Growth, they are more likely to churn.
Clients often won't tell you that the money is better spent elsewhere. Clients may use the phrase "No Budget", which kinda tells you the same thing...or does it?
The problem with a client saying "No Budget" is it raises a question. Does this mean the client does not have any money to pay you i.e. no budget or are they looking for a discount? - you need to work this out through some gentle probing.
For this example let's assume that the client doesn't have a budget. You can continue to ask why they have no budget and at this point, as a vendor, you are sometimes stonewalled. You don't get any more meaningful information.
This is where relationships with stakeholders within the organisation are very useful. Where you have a good CSM or account manager they may get wind of a change in budgets for your software well ahead of time. This gives the vendor an opportunity to try and work something out so the client does not churn.
Budgets are a function of value to the business. A budget is created to pay for services and solutions. Those services and solutions provide greater value over time to the client than the cost.
Some budgets are built in a very factual manner with significant analysis and oversight. Other budgets are built in a very emotive way - "Gut feel".
As you sell to larger clients, there is greater oversight of budgets and so a continual drumbeat demonstrating the value of the solution is important and necessary.
HOW DO WE DO THIS!?
CSMs add value to clients by helping project teams deliver the solution. The CSM is a post-sales professional. They are able to help with the direction of the implementation and in some cases drop down into technical work to help out. More often it's in the architectural space that they add value to the clients.
CSMs do far more than this but this is one example of the function they do in their role.
We need CSMs in the business to ensure the "drumbeat" message of the value of the software solution is continuous within the client's organization. This can be delivered by a number of means, emails, telephone calls, webinars, workshops, meet-ups etc
I ADVOCATE FOR THE CUSTOMER VALUE SCORE.
The customer value score is a measure that aligns with the measurements of success for the customer. The components that make up this type of score would be something like the following:
Did the client implement the project that the software solution was designed to deliver?
Did the client implement the project where the software solution was one small part? Is the software solution a cornerstone product or a supporting product to the success of the project?
Did the software pass the client’s internal rate of return (growth delivered to the company from their investment)
In an MSP model, is the vendor’s solution adding quantifiable value to the end users
In a tier 1/2 reseller model, is the solution meeting the needs of the end users
What is the skill level of the reseller involved in the project
How much services revenue is the reseller getting in relation to the cost of the software?
Who are the stakeholders and what is their myers-briggs personality? Are we delivering "drumbeat" information to these individuals in a way that suits their personalities?
etc
MY POINT OF VIEW
The chances of a customer churning is directly related to the success and value that the client enjoys. The greater the value the client enjoys the service, the lower the chances of churning.
I believe that the current view of the Customer Health Score is too vendor focused and needs expanding.
Other challenges with the Customer Health score is the weighting applied to each component that is measured.
Natero lists the following data points to measure Customer Health. (not an exhaustive list)
Activity level
Feature adoption
Support history
Billing history
Customer feedback
Relationship strength, sentiment score, or other subjective input
But what about weighting the importance of these measures? This is hard.
It requires a large corpus of data to make judgments about the impact of each feature on the client's success.
We have to start somewhere in this process and the main CSM vendors do a great job of helping vendors do this - its better than nothing!
If you only sold your solution to one particular type of customer then you can make a good case for the weightings for the KPIs. As soon as you sell to a large organisation the weightings change, the importance of each Customer Health Score changes as well.
As your offering grows (the solution has more features) and becomes more expensive, this also changes the dynamics of the factors that influence churn.
I am a strong supporter of trending data. Information that shows a direction but not necessarily the answer. Sometimes, just looking at trending data provides insight and learning because guess what, some of this data is ambiguous.
SUMMARY
The customer health score is a good starting point to get control of the success factors that influence customers.
Looking at KPIs from a customer value score perspective would provide an enhanced view. Knowing more about your customer, their needs wants and success criteria improve your chances of predicting churn.
Other areas for consideration: Impact of time to value and churn. A topic for another time.
INFO ON CUSTOMER HEALTH SCORES
Have a look at the three of the main CSM application vendors’ view on Customer Health Scores. i.e. Gainsight , Totango and Natero
Gainsight
https://www.gainsight.com/customer-success-best-practices/how-to-score-customer-health/
Totango
https://support.totango.com/hc/en-us/articles/202301749-Defining-the-customer-health-score
Natero
https://blog.natero.com/customer-health-score
