Ralf Wittgen, Chief Customer Officer, Promapp
There is no doubt that maximizing customer retention is a mission critical for any SaaS company. To manage that, most companies identify the influencing factors of retention, and assemble a Customer Health Score (CHS) as a metric to measure. Customer Health Score measures the relations between the vendor and the customer and aims at assessing the health of those relations and predicting their future direction: churn, renewal, expansion. For the past years, we believed to have found that ‘magic CHS formula’. But, we are now starting to realize that ‘something’ is missing in this formula!
YOUR CURRENT CHS MIGHT BE USELESS!
Why do we conclude that ‘something’ is missing? Simply, because today’s definition of CHS cannot explain these situations:
• Some customers churned, although their CHS was high
• Other customers never churned, although their CHS was low
It is realised, that the formula to calculate CHS usually assesses the relationship between us as a (software) vendor and our customer, but ignores the maturity of our customer using our (software) product solution. Here are two scenarios illustrating why maturity matters:
• You have two customers: Comparable in size, location and customer journey stage; high product usage, excellent CSAT ratings. Your interaction with them is good, your CHS rate must be similarly high.
Customer A grew organically, has a strong team of highly professional people and focuses with us on advance product features, service levels, and execution.
Customer B on the contrary, grew by acquisitions, their team has varying degrees of technology understanding and focusing their energy on consolidating their
Boaz S. Maor, Customer Success Advisor, Self
INCLUDE CUSTOMER MATURITY IN YOUR CHS ASSESSMENT
Clearly, we cannot forecast retention by just assessing CHS (which is in our scenario for both customers high) but we have to add the customer maturity in our assessment:
Customer Maturity measures the sophistication of the customer in running their function and consequently their ability to utilize and derive value from the vendor’s solutions. It is aimed at identifying the actions the vendor should take to address the customer’s needs.
The fascinating aspect is, that you can define different playbooks depending in which quadrant of a CHS vs. Customer Maturity illustration you would position your customer.
DIFFERENT PLAYBOOKS DEPENDING ON THE CUSTOMER MATURITY
Low CHS and Low CMI
These are tough customers that may not be worth saving. Not only that your relations with them are weak, but also, they are not mature in their business. To turn them into good customers, you need to invest in both in the relations with you and their business. Ask yourself: Do you want to invest on dual fronts? How much effort do you need to put in?
Examples of playbooks
• Proactively terminate a customer
• Minimize effort on customer to let them churn
Low CHS, but High CMI
Those are customers worth saving, investment in the relations with your customer! Your customer is mature, is ready to utilize your solutions and derive value from them. Ask yourself: What can we do to increase their CHS?
Examples of Playbooks:
• Define means to increase usage of product
• Deliver tailored product training
• Develop personal relations with executives
High CHS, but Low CMI
Those are your steady-state customers, the ‘cash-cows’. The relations are good, so they are not likely to churn, but since their CMI is low, they are not likely to expand and grow much either. Ask yourself: How can you invest in your customer to drive their maturity? Please note, that the investment here is not in educating your customer on your product (standard training material), but rather management consulting to enhance how they run their business
Examples of Playbooks:
• Deliver consulting services to increase customer engagement
• Engage partners to do the same
High CHS, High CMI
These are your star customers, the advocates, the ones that can provide you with the best feedback on your product and push you to the next level. These are the customers you love – and they love you! Ask yourself: How can we expand and leverage them for Advocacy?
Examples of Playbooks:
• Identify new use cases, expand to new teams or geographies
• Develop and publish case studies and testimonials
• Build an Advocacy campaign
CALCULATE YOUR CUSTOMER MATURITY INDEX (CMI)
Try to keep the calculation of your CMI simple. Start by using these core characteristics which we identified as the most important:
Then, determine key critical success factors for each core characteristics, assign a score between 1-5, add weights to set different priorities among characteristics and calculate the CMI accordingly. Done!
Although, this calculation can be run by your Customer Success Team, we recommend to allow your customers to run this as a self-assessment and transfer the assessment results back into your Customer Success system.
This approach both scales with your growing customer base and improves your retention forecast, because you now include a Customer Maturity Index in your assessment for retention and expansion potential!
Promapp Solutions work with organisations to foster thriving business improvement and process management culture. Incepted in the year 2002, the company is operating from Auckland, New Zealand.