How to Calculate a Customer Health Score

Customer success, even if you don't have a formal department for it, is the beating heart of a thriving subscription business. A happy customer is less likely to churn.

But how do you know who's happy and who's not? How do you track the sentiment and satisfaction of your customers in a scalable way?

Enter the customer health score. We’ll cover what exactly a customer health score is, the benefits of measuring it, how exactly you go about calculating it, and ways to improve it.

What is a customer health score?

A customer health score is a metric that SaaS companies can track in order to keep an eye on overall customer health and use as an indicator of customers potentially at risk of churning. This value measures a customer’s engagement and satisfaction with your company in general and your product. In addition to potentially identifying at-risk customers, a customer health score can also be used to identify customers that are good candidates for upselling.

What are the benefits of knowing a customer health score?

Improve retention, reduce churn

The primary benefit of knowing your customers’ health scores comes down to the biggest concern for most SaaS companies: churn reduction. When you regularly calculate and monitor your customer health scores, you’re better able to identify early customer issues, signs of friction, or decreased engagement in your customer base. Keeping an eye on customer success and satisfaction throughout the customer lifecycle makes it much easier for you to address issues on the front-end and stop churn before it even starts.

Increased chance of upsells & new sales

But customer health scores have benefits even outside of churn reduction. As stated earlier, the great thing about customer health scores is that they work on both ends of the spectrum. If they can help you identify at-risk customers, they can also help you identify extremely happy customers. And happy customers are a prime opportunity for you to increase your sales and move a percentage of your current customers to higher priced tiers.

Not only are happy customers more likely to go for the upsell — they’re also some of your best salespeople. When a customer has a higher customer health score, they’re more likely to recommend your product to friends and family. In turn, that word-of-mouth can enhance your reputation and increase your sales to new customers.

How do you calculate a customer health score?

Unlike most SaaS metrics, the customer health score doesn’t actually have a set formula. Instead, the calculation for your customer health score will be unique to your company and your specific product. But there are five major steps that you’ll take when calculating a customer health score.

1. Decide what you’ll monitor and measure

You’ll need to look at key indicators in order to calculate your overall customer health score. When it comes to deciding which key indicators you’ll look at… that’s where the unique nature of different SaaS products comes into play. In order to choose which indicators matter for your company, you should consider what indicators you would look at to evaluate whether or not a customer was likely to churn or whether they were likely to upgrade.

For instance, you could look at it from the perspective of product adoption. You could examine how quickly customers are getting out of set-up mode, how much they’re utilizing different features, the number of times they’ve logged in, etc. Whatever indicators you choose, those will be the factors that you’ll use in your customer health score formula.

2. Establish score direction

Since you’ll obviously be looking at both positive and negative indicators, that difference in elements will need to be reflected in your final formula. As you’re choosing your key indicators, try to separate them into lists that establish whether they’re a positive or negative indication of how your customer is interacting with your product. In the end, the items on the good list will be added to your score, while the ones of the bad list will be subtracted.

3. Assign impact scores

Every indicator is different when it comes to how much importance it really has with regards to customer satisfaction and success. Again, the varying degrees of importance will depend entirely on your specific SaaS product. For instance, for your product, a customer not getting out of set-up mode or rarely logging in may be far more detrimental to customer success than not quickly adopting one specific feature.

That’s why you’ll want to assign weight to each specific indicator that quantifies how much impact it should have on your overall customer health score. Try to specifically examine the actions of both your churned customers and your customers on your highest pricing tier. This will give you a good feel of what indicators have the highest impact, be it positive or negative.

4. Segment your customers

You already know that not every single one of your customers can be lumped together. In fact, you’ve probably already used customer segmentation for other things (like cancellation flows). Look at any customer segments you already have and try to determine how each of these segments could be impacted differently by your chosen indicators. You can then create impact scores for specific customer segments.

5. Calculate the customer health score

Now it’s time for the math. Take a look at your chosen indicators and how many times each action has occurred. You’ll take that number and multiply it by the weight assigned to that specific action. This will give you your total action value. Don’t forget to negate the value of negative actions. Then you can simply add all of your total action values together to calculate your final customer health score.

Once you have that customer health score, you’ll still need a way of interpreting that data and turning that number into something that’s easily identifiable. There are a number of ways to do this. For instance, you could convert that score into a percentage by dividing the customer score by the maximum value. You could divide your customers into colored buckets: green for go, yellow for caution, red for stop. You could even translate customer health scores into letter grades using the traditional "A" through "F."

How do you improve a customer health score?

Now you’ve calculated your customer health score. But if you don’t use the data you’ve compiled to improve your relationship with your customers and their overall success and satisfaction, then it was basically time wasted. Whether you customer health score is already pretty good or has you worried about your potential for future churn, let’s talk about some ways to improve that score moving forward.

Ask for customer feedback

Customer feedback is always valuable data when it comes to reducing churn and improving KPIs. You can always use in-app surveys to get a feel for your customer base’s opinion on and experience within your product. But it pays to get even more personal. Try to focus on building a real connection with your customers, especially any that you’ve found who have a low customer health score. Reach out to these customers and ask them what you can do to help. If it’s a customer with a high customer health score, ask them about their customer success story and how your SaaS product has helped them grow their business and make more money.

Improve your onboarding experience

If your negative customer health scores are indicating that customers have problems adopting your product or using it long-term, you could have an issue with your onboarding experience. A good onboarding process aims to prevent people from signing up, trying the tools or services for a little while, and then never logging in back again. Try to refine your onboarding experience to include more hands-on guidance and outreach to new users.

Focus on quality services

In order to truly enhance customer success, you have to provide your customers with the best experience possible. Focusing on providing a quality product and fantastic customer service can translate into improved customer success rates, customer satisfaction levels, and customer health scores.

Identify troubling patterns and implement solutions to improve them

Like most data, the utility of a customer health score really comes down to your ability to recognize trends and patterns in the data you’ve collected. Look at the indicators and behaviors that you’ve examined and try to identify if there are overarching patterns. For example, if you’re seeing that a lot of customers are failing to adopt a specific feature, this could indicate that they haven’t been properly educated on the existence and/or utility of that specific feature.

Improve your customer health scores with Churnkey

Founders of SaaS companies and startups know that every customer counts for the long-term business success and growth rates. Churnkey helps you improve customer retention rates and fight churn by helping you track key metrics, identify patterns with Customer Timelines, and more. Get started today with a free trial.