Businesses have been putting the customer at the center of their strategy for decades. Adopting a customer-centric strategy, businesses are building their company around the customer to ensure their customers remain satisfied with relationship and receive value from their products and services. Business leaders are now relying on customer metrics as a way of measuring progress. This post will formalize a set of standards you can use to develop the right customer health scores.
Creating Customer Health Scores
Customer health scores are numerical indices that represent the quality of the health of the customer relationship. Customer health scores can be used in your customer analytics efforts to help you get different types of insights about your customers. Customer health scores can be used to:
- tell you the current status of your customers’ health (i.e., descriptive analytics).
- predict future events (i.e., predictive analytics), like whether or not your customers will churn, buy more products from you or even recommend you to their friends.
- inform you what course of action you need to take to mitigate risks or capitalize on future opportunities (i.e., prescriptive analytics).
But how do you create customer health scores? Creating customer health scores takes three steps: 1) identify all available metrics, 2) select the metrics to include in the customer health score and 3) combine metrics into a score or scores.
1. Identify available metrics
Because we live in a Big Data world, businesses now have access to their customers’ digital trail. This treasure trove of data is an excellent source of potential metrics that can be used to create customer health scores. Below are different sources of data that include metrics which can tell you a lot about the health of your customer relationship. We have divided these metrics into broader categories of behavioral and attitudinal metrics.
- Product usage : How frequently are customers using your product? Are they using certain product features only? Are they using your key product features?
- Channel usage : How many (What) channels (web, support, social media) are your customers using to engage with you?
- Login frequency : How often do your customers log into your service?
- Billing history : Do they pay their bills on time?
- Training history : Have customers attended your training?
- Customer satisfaction : Are your customers satisfied with (receive value from) your products/service?
- Loyalty intentions : Are your customers likely to recommend, stay and buy more/additional products/services
The next step is to decide which metrics you will use as part of your customer health score.
2. Select metrics to include in the customer health score
You have two options for selecting the metrics to use in calculating your customer health score. One approach is to use your best judgment to select the right metrics to include. Another approach is to use mathematical criteria as a means of selecting the metrics to include in your customer health score.
For the latter approach, machine learning service providers are helping their customers identify the metrics to use in a customer health score. This process is accomplished by identifying, through machine learning, the metric or metrics that are highly predictive of real loyalty behaviors (e.g., whether or not customers stayed or churned). Metrics that are highly predictive of customer churn would be candidates as useful metrics to use in your customer health score.
3. Combine metrics
Customer health scores can be based on a single metric or can include a combination of several metrics. When combining different metrics into a single customer health score, you have two options. You can weight all metrics the same so they are all equally important in determining the health of your customer relationship. In the other approach, you can weight each metric with respect to its importance in driving important outcomes, including customer loyalty behaviors.
Criteria for Effective Customer Health Scores
As companies’ customer-centric programs mature, they will rely more and more on the use of customer health scores to help them manage customer relationships. When using and reporting customer health scores, it is important that everybody understands the meaning of the customer health score. We recommend reporting the following four pieces of information when using customer health scores.
1. Clearly define your customer health score
Customer health scores need to be supported by a clear description of what they are measuring. Basically, the customer health score is defined the way that words are defined in the dictionary. They are unambiguous and straightforward. The definition, referred to as the constitutive definition, not only tells you what the customer metric is measuring, it also tells you what the customer metric is not measuring.
2. Use precise algorithms when calculating a customer health score
Depending on your definition of the customer health, calculating a customer health score can be based on a variety of data sources including surveys, social media or logs from interactions with the company (e.g., call center). Whatever source of data you use, it is important to convey precisely how the customer health score is calculated.
Understanding how the customer metric is calculated requires understanding two things:
- the specific variables/metrics used in the customer health score
- how the specific variables/metrics were combined to get to the final customer health score
Knowing the specific variables and how they are combined help define the meaning of the customer health score. This is referred to as the operational definition of the customer health score.
If customer ratings are used to calculate a customer health score, any survey instructions and information about the rating scale (numerical and verbal anchors) need to be included. If natural language processing (NLP) is used to gauge sentiment from a body of text, indicate how sentiment was derived.
3. Determine the measurement quality of the customer health score
Measurement quality refer to a scientifically-derived index that describes the quality of a customer health score. We evaluate customer health scores along two criteria: 1) Reliability and 2) Validity. Reliability refers to measurement precision/consistency. Validity is concerned with what is being measured. Providing evidence of reliability and validity of your customer metrics is essential towards establishing a solid, meaningful customer health score.
4. Demonstrate the usefulness of the customer health score
While customer health scores can help you understand the current state of your customers’ health, we believe that their greatest value is in their ability to be leading indicators of different types of customer loyalty behaviors, helping you identify which customers will stay, recommend you and buy additional/different products from you.
Illustrate the efficacy of the customer health score by showing how well it is predictive of important organizational outcomes. Demonstrating the predictive power of customer health scores helps employees understand the utility of the customer health score in helping them be more proactive in managing customer relationships.
Summary and Recommendations
A customer health score is a way of measuring the health of the customer relationship. Developing a customer health score involves three steps. First, identify the potential metrics that are available to you. Second, select which metric(s) you want to use in your customer health score. Third, combine the metrics into a single customer health score.
Be prepared to share information about the customer health score when it is used throughout the company. This information helps the user understand important elements of the customer health score. This information includes: 1) a clear definition of the score, 2) the underlying method for combining the metrics to create the customer health score, 3) the measurement quality of the score and 4) the usefulness of the customer health score in helping drive real internal changes (e.g., improved marketing, sales, service) that lead to measurable business growth (e.g., increased revenue, decreased churn).
Using customer health scores that meet these criteria will ensure decisions are based on information that is meaningful and real. Clear definitions of the customer health score and accompanying descriptions of how it is calculated help improve communications regarding customer health scores. Different employees, across job levels or roles, can now speak a common language about customer health. Establishing the measurement quality of the customer health score gives senior executives the confidence they need to use it as part of their decision-making process.
The bottom line: a good customer health score provides information that is reliable, valid and useful.