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The Ultimate Guide to Customer Health You Ever Need

VP of Customer Success, Lucy, went into work to start her Monday with a smile. As she sat down in her office with her favorite cup of coffee and checked the monthly report, her phone rang. The call was short, but Lucy’s mood wholly changed afterward. 

“Another top customer churned.” 

Lucy’s team has been battling with the churn issue in the past year, and it seemed only to worsen. It greatly impacted their bottom line despite how many new customers they brought in. 

Lucy felt defeated because it was already too late; the customer already made the decision. She felt as if there was nothing else she could do but accept that her firm just lost another large customer to the competitors. 

But that’s not true!

There’s a metric to predict churn known as customer health. In this blog, we will discover what it is, why it matters, and how you could use it to reduce churn problems.

So, what is Customer Health?

Simply put, customer health is a scoring process that summarizes how much engagement a customer has with your company. 

Sure, but why is customer health so important, especially to SaaS companies?

Understanding your customer needs is the key to business expansion because it allows you to cut costs while doubling your profits.

Here are a few fun facts about customer churn and upsell:

  1. A 5% increase in customer retention can lead to a 125% growth in profit.
  2. 70%-95% of subscription-based revenue firms come from upsells and renewals. 
  3. It costs $1.32 to acquire $1 of ARR from a new customer, but it only costs $0.71 when upselling existing customers.
  4. A highly satisfied customer will generate 2.6x times more in revenue than new customers or those who are just somewhat happy. 

Source: 99firms.com

What kind of data do you need, and how do you measure it?

Customer Health metrics might vary depending on your needs.

However, if you seek comprehensive customer profiles and accurate churn prediction, these are 9 Key Performance Indicators (KPI) that you MUST track.

  1. Product Usage: 
    1. The frequency that the customer uses or purchases the product.
  2. NPS/CSAT (net promoter score/customer satisfaction)
    1. Level of customer satisfaction
  3. Interaction Frequency
    1. Frequency of customer interaction
    2. Measure unit: email, calls, visits
  4. Support Tickets
    1. Numbers of support requests submitted by customers 
  5. The severity of Support Tickets
    1. The severity of the issue in submitted support tickets
  6. Upsells/Downsells
    1. Revenue generated from each customer (increase or decrease)
  7. Customer Maturity
    1. Customer Lifecycle
  8. Renewal Sentiment
    1. Analysis of written customer interaction 
  9. Customer Owner Pulse
    1. Customer owner’s assessment of customer health

Yes, you would need all 9! 

Each of the KPIs measures a different aspect of your customer. 

For example, product usage shows how often the customer – Paul, is using your product. His usage frequency tells your customer success team how important the product is to Paul.

Next, Paul’s interaction frequency with the firm (whether emails, calls, or visits) showcases his commitment/loyalty to the firm because he takes time and effort to reach out!

But the frequency alone can’t paint the whole picture. The content of these interactions (what is Paul saying in these emails, calls, and visits) is just as important. Firms often overlook this value while calculating customer health because retrieving and analyzing this data is surprisingly challenging. It is nearly impossible to do without the help of advanced analytical tools.

For some customer success managers, customer health isn’t rocket science. You have seen, heard, and used it before, but you are still skeptical and unsure what to do with it. 

That might be because you are missing one crucial value that ties everything together. Threshold value. 

How Can You Interpret Customer Health Measurement?

One crucial action step to understanding your customer health is by setting a threshold value. This number is significant to the success of the scoring system because it indicates the team when to take action and what needs to be done (whether to prevent churn or capture the upsell opportunity).

For example, any customer whose scores fall below this value indicates a high churn probability. The customer success team should take preventative measures before churn occurs. 

Favorably, high customer health scores imply that the customers have been using your product quite frequently and are satisfied with it. In fact, they are turning into your loyal customers!

And loyal customers are the best fit for upsell/cross-sell as they are more likely to repeat purchases and make upgrades! (How exciting!). 

Unfortunately, there is no “universal” threshold value. Instead, it varies across firms and industries due to factors such as firm maturity and product types.

This step of the process can be tricky, which is where AI comes into the equation. 

Imagine manually collecting data, transcribing audio to texts, analyzing email inquiries, and then putting everything into your worksheet to calculate the customer health of just one individual.  Now multiply that by tens of thousands of customers you have. It will take months (if you are lucky!)  

When dealing with such a complex set of data, AI will be your best friend. 

AI can calculate your unique set of data while simultaneously comparing it to industry best practices in the matter of seconds. Then, it would generate the most suitable/reasonable value for your unique situation. 

The best part is, you only have to worry about this process once because AI learns and grows with you.

AI will automatically pick up on trends and patterns as you gain more customers. The more data and feedback it receives, the better the AI prediction becomes. 

Train him once, and he’ll automate the tedious process for you.

Less Churn. More Profit.

To reiterate, customer health is essential to companies, especially for those in the SaaS industry. 

As your firm’s revenue depends heavily on annual recurring revenue, churn prevention is the best practice to consider implementing into the overall expansion strategy.

And you MUST use these 9 KPIs when calculating customer health to build the most comprehensive customer profiles and yield the most accurate churn prediction.

  1. Product Usage 
  2. NPS/CSAT (net promoter score/customer satisfaction)
  3. Interaction Frequency
  4. Support Tickets
  5. Severity of Support Tickets
  6. Upsells/Downsells
  7. Customer Maturity
  8. Renewal Sentiment
  9. Customer Owner Pulse