How to calculate customer health scores
As we mentioned earlier, the exact numbers you use to calculate your customer health score will depend on your product. We'll examine that as we go through the five major steps in calculating a customer health score.
1. Determine what to measure
When determining the health of a customer, you want to look at key indicators. This is the value that is unique per product. You may track how frequently the customer uses an important feature, how often they log into the account, or how many support tickets they have. The key here is to think about what makes a customer likely to upgrade and what makes them likely to churn. Those become the factors that go into your customer health score formula.
2. Establish score distribution
Because we are taking both positive and negative actions into account, both elements need to be reflected in the formula. Separate your actions into a list of good and bad ways customers may use your product. The good actions will be added onto your score, and the bad actions will be subtracted.
3. Assign an impact score to each action
Not every score in your list will be equally important. For this reason, each action should have a weight attached to it that quantifies its impact on a customer's health. You will want to specifically examine the actions taken by churned customers and customers on your highest price tier. The strength of the correlation between the two shows you the impact particular actions can have.
4. Segment your customers
Your customers are likely not homogenous, and you've likely already done a fair deal of customer segmentation as part of your marketing efforts. Think about how each of your customer segments may be impacted by different actions and create a set of weights for customer segments with substantially different outcomes.
Positive action 1 weight = 5,Positive action 2 weight = 10
Negative action 1 weight = 3,Negative action 2 weight = 7
5. Calculate total action score + template
Now, you'll want to create a template. Count the number of times each action has occurred and multiply that value by the weight assigned to the action. This gives you your total action value. Remember to negate the value of negative actions. You can then simply add the total action values together to get the final customer health score.
The customer health formula is:
Customer health score = total action value #1 + total action value #2 + total action value #3, etc.
Written out with an example of two positive factors and two negatives, you can see that the formula follows this basic format:
Positive action 1 count x Positive action 1 weight +Positive action 2 count x Positive action 2 weight -Negative action 1 count x Negative action 1 weight -Negative action 2 count x Negative action 2 weight
Using the weight from the example above, let's say actions 1 and 2 took place only once each. The formula would then look like this:
Positive actions: (1x5 + 1x10) - Negative actions: (1x3 + 1x7):15 - 10 = 5
The final customer health score is 5
For more accurate results, ensure you deduct points if a user has not completed an action within the specified period.
Using this formula structure, you can create a customer health score template in your favorite spreadsheet program that lets you quickly calculate the customer health score of any client.