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Here's How to Measure Customer Health

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The colorful new customer success tent is filling up quickly with marketers — despite lingering doubt about what customer success means or how exactly to measure it.

As it turns out, Forrester Research has been looking into the latter question. It interviewed 13 US-based Software-as-a-Service (SaaS) companies to get ideas on how "customer health scores" are measured. 

The study was commissioned by Gainsight, one of a number of companies in the nascent customer success segment  along with Amity, Totango, Bluenose Analytics, Evergage, FrontLeaf, Intercom.io, Preact.io, Scout by ServiceSource, Sparked.com and Woopra.

Customers Rule

As we reported last month in another story on Forrester's research, the customer success movement is based on the shift to the much ballyhooed "subscription economy" in which companies sell services instead of packaged products. Such companies tend to derive the value of a customer over a long period of time. So instead of, say, selling you a DVD of a movie, services like Netflix or Amazon Prime stream the movie to you for a fee.

According to the authors of the new report, clients increasingly control the relationship that they have with vendors. As a result, customers are becoming more demanding, staying loyal only when there's a clear return on investment. In the B2B universe, that translates to cold hard cash and other indicators of customer success.

For the vendors, this provides an incentive to actively measure customer health to make sure the customers are meeting with success. The goal is to minimize churn and to increase the value of the account. 

This, of course, leads to the development of a health score from such data as financial factors, customer relationship management (CRM), product usage, support tickets and customer feedback. And all of that leads to data-driven actions to help the customer succeed.

"Assessing a customer's health score is a difficult proposition due to the volume of data this must be collected, synthesized and trended," the report stated. "Customer health correlates to the propensity for churn or growth. A good health score is an indication of customer satisfaction. A poor health score is an early warning signal for churn."

The Unpredictable

Even when a customer is using a product well — and has a good score — the customer may switch vendors for unrelated reasons such as the loss of the executive who ordered it or a change in strategy. So the researchers tried to determine which parts of a customer health score correlate closely to churn.

"This is not a simple question to answer, but all companies that we interviewed said that having a deep understanding of what customers are doing with your product is a critical measure in assessing their health as a starting point," the report said.

The bottom line is that companies should keep one eye on a customer success score and the other on how the customers are actually using the product.

Stay in Touch

"Customer success managers must actively engage with their customers at all levels of an organization — from the executive level down to the product users — to understand the company's business goals and ensure that their purchases are being optimally used to support and advance these goals," the report said.

There are three key recommendations:

  • Arm customer success managers with the right data to monitor and measure the health of their customers
  • Use the data to help customers realize the value of their investments
  • "Trend your health score," which means to notify CSMs of any changes in health scores that could be a harbinger of churn

The Next Report

If the new Forrester report leaves some unanswered questions, they may be filled in soon by the Customer Success Association itself, which has established a project to explore standards in the field. It's website explains why:

One of the major challenges confronting the rapidly emerging profession of Customer Success Management is that there are few standards to be found in the explosive growth of teams and titles across the worldwide customer success community. Both job descriptions and applicants use the same terms to refer to what actually are very different roles and experiences. Customer expectations of the services and value to be received often vary widely despite the seeming common language."

 
 
 
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