As technology advances, so does the way businesses operate. As the business world increasingly turns to software-as-a-service (SaaS) models, companies need to understand how these can be improved to positively affect their bottom line. So from this article, you will learn why customer health scoring for Saas businesses.
A SaaS business provides software that’s delivered over the Internet to customers. The software is typically a subscription service, meaning customers pay a monthly or yearly fee. SaaS businesses are typically cloud-based, meaning that the software is hosted on the Internet and can be accessed by customers from anywhere. This business model has become popular in recent years as more and more businesses move to the cloud.
In this era of big data, predictive analytics is becoming increasingly important for all types of businesses, including SaaS. In the SaaS world, customer health scoring is one of the most powerful predictive analytics tools available. This article will take a closer look into it and explore why it’s paramount to success in this day and age. It’ll also discuss some best practices for customer health scoring to help your business utilize such a tool effectively.
What Is Customer Health Scoring?
Customer health scoring is a data-driven way to predict which customers are at risk of churning. It’s a tool built using machine learning, a type of artificial intelligence that allows computers to learn from data, analyze customer behavior, and identify patterns that indicate when customers are likely to cancel their subscriptions. Some customer health scoring tools can also be used to monitor product signals to keep tabs with the customer’s usage of products, and predict the readiness for conversion, churning, or expansion
Customer health scoring aims to help you proactively address customer churn before it happens by assessing how likely it is for a customer to stick around and continue using your product.
Several different factors go into customer health scoring. By tracking these aspects, you can get a clear picture of which customers are at risk of leaving, which are unhappy, and which are the most valuable to your business. Here are a few of the most important ones:
1. Churn Rate
Churn rate refers to the percentage of customers who cancel their subscription or stop using your product within a given period. It’s a key metric in customer health scoring. A high churn rate indicates that customers aren’t happy with whatever you’re offering. A low churn rate, on the other hand, indicates that customers are happy and are less likely to cancel their subscriptions.
These are some of the things you can do to decrease your business’s churn rate:
- Directly reach out to customers and ask for feedback
- Offer them discounts or other types of incentives to make them stay
- Make changes to your product based on their feedback
- Improve your customer support
- Make it easy for them to cancel their subscription
With these strategies, you’ll have more satisfied customers who won’t think twice about renewing their subscriptions.
2. Customer Engagement
One of the most important factors in customer health scoring is engagement. Customers who have difficulty using a product are less likely to be happy with it.
There are several different ways to measure engagement. Some businesses track how often customers log in, use the product, and interact with customer support, while others track how many features are used. Such methods give a general idea of how engaged a customer is with the product.
3. Support Tickets
Another factor in customer health scoring is support tickets. If a customer is constantly opening support tickets, it’s a sign that they’re not happy with your product. Support tickets can be a valuable source of feedback. They can help you identify problems and allow you to address them immediately and accurately.
4. Net Promoter Score
NPS measures how likely a customer is to recommend your product to someone else. To calculate this, you simply ask your customers how likely they are to recommend your product to a family member, friend, or colleague. Based on their responses, you can classify them as a ‘promoter’ (9-10), ‘passive’ (7-8), or ‘detractor’ (0-6). Promoters are your healthiest customers—they’re loyal and likely to continue using your product. Passives are satisfied, but could be lured away by a competitor. Detractors are unhappy and are at risk of churning.
5. Lifetime Value
Lifetime value (LTV) is the total value a customer brings to your business throughout their relationship with you. It’s a key metric in customer health scoring. A high LTV indicates that customers are valuable to your business; obviously, low LTV means the opposite.
6. Customer Satisfaction
The final factor that goes into customer health scoring is customer satisfaction. You can measure it in many ways, but customer surveys are often the most effective. By measuring customer satisfaction, SaaS businesses can get a sense of how likely customers are to be happy with the product and continue using it.
Why Is Customer Health Scoring Important For SaaS Businesses?
SaaS businesses are particularly well-suited to customer health scoring. The recurring revenue model of this business model means that customer churn can significantly impact the bottom line. To continue growing, they need to ensure that customers are happy and continue using their product.
Customer health scoring can help SaaS businesses through the following ways:
Here are the Importance Of Customer Health Scoring For SaaS Businesses
1. It Helps Prevent At-Risk Customers From Churning
One of the biggest advantages of customer health scoring is that it can help prevent at-risk customers from churning. Once at-risk customers are identified, SaaS businesses can take steps to prevent them from leaving, such as reaching out to them and offering them a discount on their next purchase. Alternatively, the business could offer them a free trial of a new product or feature.
2. It Helps Identify Valuable Customers
Customer health scoring can also help you to identify and target your most valuable customers. Knowing which clients are most likely to remain loyal and which are the most valuable to your business helps you focus your efforts on retaining them.
3. It Leads To Improved Decision-Making About Pricing And Product Features
Through the data gained from customer health scoring, your SaaS business can ensure that your pricing and product features align with their needs. This might mean offering lower prices to customers at risk of churning or adding features they’ve requested. In addition, customer health scoring can help SaaS businesses improve their product. By tracking engagement and support tickets, companies can identify product and price problems and take steps to address them.
4. It Increases Customer Lifetime Value
Another benefit of customer health scoring is that it can help SaaS businesses improve their customer lifetime value. By understanding their customers and working around their preferences, they can take steps in retaining them. This can result in higher customer lifetime value and a corresponding increase in revenue.
5. It Improves Customer Acquisition And Retention Rates
In addition to improving lifetime value, customer health scoring can also help businesses improve their customer acquisition and satisfaction efforts. It helps them understand which customers are most valuable; from there, SaaS businesses can make changes to improve the customer experience. This can lead to higher customer acquisition and repeat business.
6. It Contributes To Effective Allocation Of Resources
If you know which customers are most likely to churn, you can focus your limited resources on keeping them happy. This might include spending more time on customer support for at-risk customers or offering them more generous discounts.
Best Practices For Customer Health Scoring
When it comes to using customer health scoring data to make decisions, here are a few best practices you can follow to ensure accuracy and usefulness:
Creating A Customer Health Scorecard
The first step in customer health scoring is creating a scorecard that includes key health indicators. There are a few different ways to do this, but a good starting point is to look at customer churn rates, which will give you a good idea of which customers are at risk of leaving and, as such, are less healthy.
Other indicators you may want to include on your scorecard are:
- Average time between purchases
- Average order value
- Net promoter score
- Customer satisfaction score
Once you have a list of potential indicators, score each on a scale of 0-100. This will give you a base score for each customer.
Creating A Threshold For Customer Health Scores
The next step is to create a threshold for what’s considered ‘healthy.’ This will depend on your business, but a good starting point is a score of 80 or above. Customers who score below this threshold are considered at-risk and, thus, should be given special attention.
Knowing What To Do With At-Risk Customers
Once you’ve identified which customers are at-risk, you need to take action, mostly depending on the health score of the customer and the cause of the said score. For example, if a customer has a low score since it’s been a while since they last purchased, you may want to reach out to them with a special offer or promotion.
On the other hand, if a customer has a low score because they’re unhappy with your product, you may need to see if there’s anything you can do to improve their experience. In any case, the goal is to address the underlying cause of the at-risk score and help the customer get back on track.
Overall, no matter what your specific situation is, customer health scoring can be a valuable tool for improving your SaaS business. Through this, you can identify and address problems before they cause too much damage. Additionally, you can use customer health scoring to target your most valuable customers and focus your efforts on retaining them.