Why Your Customer Health Score is Probably Useless

June 12, 2017

Why Your Customer Health Score is Probably UselessCustomer Health Score (CHS) measures the health of the customer-vendor relationship and aims to predict its direction: will it churn, renew, or expand? CHS is only useful if it is defined within an effective segmentation of customers. While most strong Customer Success (CS) organizations segment their customers based on dimensions such as size, stage and geography, a glaring missing dimension is the maturity of the customer, which we call the Customer Maturity Index (CMI). This index measures the ability of the customer to effectively utilize and derive value from the vendor’s solutions.

This is part one of a three-part blog post:

  • Part one: Provides the case for the new Customer Maturity dimension and why it is so critical for sophisticated CS teams.

  • Part two: Explains how the concept of Customer Maturity is the natural next phase along the evolution of the Customer Success profession.

  • Part three: Dives deep into the methodology we have developed for assessing Customer Maturity and provides a practical means for utilizing it.

1.  The Problem: The Current Customer Health Score is Useless

Customer Health Score: The Customer Health Score has become a prominent metric for CS executives and Customer Success Managers (CSMs). Every CS team measures it and every Customer Success Management (CSM) platform solution presents it at the top of their dashboard. It is positioned as the ultimate representation of customer success and the best predictor for future customer engagement (churn/retention) with you, the vendor.

Most Customer Health Scores are defined based on both the level of usage of the vendor’s solutions and the level of interaction between the two companies. Many companies also include customer satisfaction ratings, NPS scores and commercial relationships in that calculation.

Customer Segmentation: At the heart of effective customer success management is customer segmentation. Segmenting customers enables your CS team to better understand your customers and align activities to foster their success. You most likely are already segmenting your customers based on some combination of the following criteria:

·     Size: Small and medium-sized business (SMB), Mid-Market, Enterprise, etc.

·     Stage: On-Boarding versus On-Going, etc.

·     Geography: Americas, EMEA, APAC, etc.

Some include verticals segmentation (e.g., Telecom, Retail, Automotive) to add additional layers of insight.

Segmented Customer Health Score: If you combine the above two analyses you provide your CS team with a more sophisticated view of your customer, and can also make the CHS more relevant to specific industry segments. This is especially true, and much more actionable, if you can create benchmarks for each segment and the data can identify trends over time.

Based on this segmentation, you design your playbooks to help you improve the CHS. The assumption is if your customers are showing the same ranking they will benefit from the same activities (aka playbooks). Right?

However, don’t you find that there seems to be a missing element that makes the data “nice to show” on a report, but not as actionable as you think it should be? Do you not have multiple customers with the same health score yet you know they are in very different places, requiring different actions to foster success?

Your CHS is Insufficient to Define Your Playbooks!

Here is a real-life example from our experience to illustrate this challenge. Mashery provided API Management solutions to customers in a multitude of industries, from startups to very large enterprises. Below are characteristics of two of our customers which had the same health score, but completely different fundamental challenges. Both customers were large enterprises, headquartered on the west coast of the U.S., with whom we had relations for multiple years, so common in size, geography and stage.

Customer A was a large retailer utilizing the Mashery multi-tenant platform to help accelerate the rollout and availability of their mobile apps while reducing the costs and effort of supporting the high variability of demand against a complex infrastructure.

Key criteria for their high CHS include:

·     Very high usage data (number of APIs, number of API calls, etc.)

·     Very good relationships with many people on their team, both executives and working level team members

·     Excellent support statistics; exceeding SLAs for both response and resolution times

·     A solid on-going set of expansion projects (i.e., high Program Expansion score).

Customer B was an information management provider which focused on providing real-time information to a large set of businesses. They utilized our platform to ease the connectivity and management of the multitude of different partners and customers accessing their systems on demand.

Key criteria for their high CHS are:

·     Very high usage of the product.

·     Strong relationships at multiple levels across the organization

·     A track record of expanding their program.

·     Solid support statistics and CSAT

Same High CHS, but Dramatically Different Playbooks!

Despite the high Customer Health Scores, these two customers were dramatically different in what we needed to do to make them successful, manage our relationship with them and grow our business with them. It was because of a few additional characteristics, which have little to do with their level of relations with us (Health Score) and a lot to do with the maturity by which they managed their own business.

Customer A:

·     Operated from a single office

·     Supported a single business that

·     Grew organically

·     Had a very strong team of highly professional people who knew exactly what they needed and had a plan of action to get there, and

·     They were pushing us on features, service levels and execution. For example, whenever the name of their VP of Product on my iPhone screen I knew I had to be on top of my game, as sharp as I could be to assess his requests and my response to them.

Consequently, managing our relationship with them (the “success plays”) required that we address their ever-increasing demands. Our joint Quarterly Business Reviews (QBRs), which they pushed for as much as we did, focused on numerically quantifying past results as well as facilitating deep discussions on our evolving product roadmap. As long as we did that, the backlog of potential new projects to expand the program kept growing, the customer derived more value from our solutions, and we could, in turn, increase our revenue from them.

Customer B: on the other hand,

·     Operated from multiple offices nationwide,

·     Supported three very different businesses they were working to consolidate since they

·     Grew by acquisitions.

·     Their teams, not the least because of the very different businesses they came from, had varying degrees of technology understanding, and

·     They had to invest significant energy in consolidating their business (different systems, different technologies, different teams, different customer types, etc.).

Consequently, our efforts had to focus on helping the team that was using our solution to justify and promote the use of our system within the other businesses. We had to spend significant effort educating the different teams on the value of our services, why they should use them and why it was of value to them to share a vendor with the other businesses. We had to stress different features to different businesses; some even needed very “basic” capabilities to just start their journey along the API Management adoption. Quarterly Management Reviews with them, which we had to work hard to get on the calendar, were focused on what else can we could do to help them promote the solution among other teams and how to get budgets to expand the solution within the existing ones.

The second part of this blog series will detail how the concept of Customer Maturity is the natural next phase along the evolution of the Customer Success profession. 

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This post was originally published on Boaz's LinkedIn

About the Authors:

Boaz Maor

Boaz Maor is a serial start-up executive with passion for Customer Success. He brings over 25 years of experience in a wide range of organizations from software to logistics to services. Considered one of the early executives to help drive the development of the Customer Success function, Boaz is a frequent speaker, writer and presenter at conferences and events. Most recently, Boaz found and led the Customer Success team at Mashery (acquired by Intel). Before that, Boaz held customer success executive positions at newScale (acquired by Cisco) and FreeMarkets (IPO and then Acquired by Ariba). Boaz holds an MBA with honors from Carnegie Mellon University.

You can follow Boaz on twitter and on LinkedIn

Ralf Wittgen is an industry veteran building with more than 20 years of experience in managing professional services teams in Germany, the U.S., and in New Zealand, providing consulting, implementation, training, and support services mainly for software products. He was one of the early adopters of Customer Success methodologies and is today a very enthusiastic, energetic and inspiring thought leader in the Customer Success area.

After serving as Vice President of Professional Services at Author-it Software Corporation in San Jose (California/USA), he is now holding the position as Chief Customer Officer at Promapp Solutions in Auckland (New Zealand), leading their On-boarding and Customer Success Team. He is a frequent speaker, blogger and tweeter at conferences and events.

You can follow Ralf on twitter and on LinkedIn

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