Hook uses a machine learning-driven health score to help revenue teams prioritise where to focus in their books of business. This article explains the importance of health scores in the Customer Success industry and the value they provide to revenue teams.
Customer Health Scores - Explained
A customer health score is a metric used by revenue teams to assess the health of a relationship with a customer, and to determine which customers to target for upsell. This metric can be represented numerically (e.g. from 0 to 100) or colour coded (red to green, like a traffic light). The health score easily indicates to revenue teams which accounts are at risk, which ones are likely to renew and ones that could expand.
A health score can include:
Product usage data
User data
Subscription data
Effective health scores should be data-driven, dynamic (updated regularly), and tailored to your organisation. Health scores should update regularly to reflect changes in a customer's activity. Updating scores weekly is considered best practice.
Hook’s health score is called an Engagement Level. This is because our health score is data-driven and includes renewal likelihood, rather than focusing on customer health alone.
Including Customer Sentiment in Health Scores
While health scores are typically driven by data, including customer sentiment can provide valuable context that data alone can miss. Sources of customer sentiment may include CSM interactions, surveys, or support conversations. This helps identify risks or opportunities which can decrease or increase the health score. When combined with data-driven insights, sentiment can result in a more complete view of customer health, helping teams take proactive action. On the other hand, putting too much emphasis on sentiment can result in health scores that are inconsistent, subjective and unlikely to predict churn accurately. Sentiment alone doesn’t correlate with renewal or churn.
Importance of Customer Health Scores
There are three main reasons why customer health scores are important for revenue teams:
Easily identify which customers are at risk, and proactively take action to reduce the likelihood of churn.
Understand the patterns that lead to dissatisfied customers, so that products and customer service can be improved.
Prioritise your books of business and where to allocate resources in your team, based on accounts at-risk and those likely to upsell.
Visibility for executive leadership on expected revenue, to help with strategic planning and closing the gap between your forecast and NRR or GRR targets.
Health scores enable revenue teams to act proactively rather than reactively to tackle churn risk. By assessing a customer’s health months before their renewal, there’s enough time to take meaningful action to influence the renewal outcome. It also helps revenue teams work efficiently if they know which customers to prioritise spending time on based on their health score.
Share health scores with customers so they have visibility of their engagement with your product. Remember to consider the relationship with the customer and level of trust before sharing health scores.
How Revenue Teams Achieve their Goals with Customer Health Scores
According to McKinsey, compensating for the value of one lost customer requires the acquisition of three new customers.
A CSM’s main goal is to reduce churn. This can only be done effectively with access to enough information about a customer to understand this risk. Health scores provide this, and more for CSMs.
Drive product adoption. See which product areas a customer is not fully utilising, and suggest how they can get the most out of these features.
Identify expansion opportunities. Easily spot healthy accounts and opportunities to increase customer lifetime value (CLV) through upsell.
Proactive problem solving. Identify risks of churn and escalate months before renewal.
Educate customers. Analyse patterns contributing to healthy customers, and make suggestions to existing customers to follow a similar roadmap.
Challenges Revenue Teams face with Customer Health Scores
Customer health scores are fantastic tools for revenue teams. However, there are several challenges faced when implementing, using and actioning on them.
Overwhelming customer data, all in different places.
CSMs must fight for data access across different systems such as CRMs, product analytics, technical support, marketing and finance. The volume of data can be significant.
Choosing the right metrics
Once data can be collected and analysed in a single destination, how does a CS team choose which metrics to include in a health score? Consulting other businesses for advice could be useful, but every business is unique and will have different factors contributing to churn.
Even after the right metrics are chosen, understanding what should be considered as low or high engagement raises challenges. Most Customer Success Platforms (CSPs) that provide health scores will allow CSMs to manually configure this conditional logic, but how can this be verified for all customers?
Scores based on sentiment
Often customer health scores will include customer sentiment (e.g. NPS, CSAT) and CSM sentiment. CSMs develop strong relationships with customers and feel personally confident about churn risks. Unfortunately this results in health scores that are subjective. These scores are much harder to generate insights from, and most importantly, almost impossible to take action on for at-risk customers.
Struggle to keep health scores up-to-date
Products will evolve, and therefore so will the data powering health scores. Maintaining an accurate, always-on health score is challenging.
Read more here about how Hook's score is different from other customer health scores.