Technology

Managing Customer Success: Is Customer Health Score (CHS) Enough?

Managing Customer Success: Are Customer Health Scores (CHS) Enough?
Jenna Van Schoor
Written by Jenna Van Schoor

As the Customer Success industry continues to evolve, many organisations use Customer Health Score (CHS) to gauge their success, but is it sufficient?

In this post, we’ll continue to expand on some of the discussions that our CEO Claire Burge has been having with Customer Success industry leaders after giving a talk called “Chaos is the New Reality” at the Totango CS Summit in February.

Building on our recent conversation with Peter Armaly, Principal Transformation Advisor at Oracle, which we published on the blog last week, we spoke to serial Customer Success Executive and one of the leading thought-leaders and innovators in the field, Boaz Maor, to find out more about his in-depth approach to assessing whether we’re truly offering value to our customers: the Customer Maturity Index (CMI).

But first, here’s a little bit of background into the current status of the Customer Success industry.

Background: The Need for Customer Success

Before SaaS, when an organisation sold a Perpetual License, they were getting between 50-80% of the value of the deal upfront. In comparison to today, where there is a payment schedule against usage over time, an initial investment into a SaaS license is only a fraction of this, often 2-5% of Life-Time-Value (LTV). Judging from this, we can see that there has been a drastic shift in the way we need to manage our relationship with our customers.

In other words, it’s now more important than ever to be able to assess the value you bring to a business-customer relationship on an ongoing basis in order to get anywhere close to the kind of value percentage that was taken for granted with Perpetual License deals. Furthermore, the lower financial risk for the customer often results in lower commitment to the success of the project.

Think about it this way: if a small engagement with a vendor failed, the customer contact who made the decision to purchase it is not in as much of a hot-seat to justify their buying decision than if the decision was a very large one. This further necessitates the need for very smart and involved engagement by the vendor to ensure the success of the customer.

To gauge where we are with our customers, so far we’ve been using the concept of CHS.

So what is Customer Health Score (CHS)?

CHS provides an insight into the relationship you have with your customer, for example, using Net Promoter Scores (NPS) to rate how likely a customer is to recommend your service, or by tracking usage to assess how well your product is actually used, or relations to assess the extent of interactions between the companies and so on.

By measuring and tracking different variables, you hope to gain insight into how well you are dealing with your customer, and to what extent your product or service addresses their needs.

Why is CHS not enough?

Based on the work that Boaz Maor has done with his co-author of the CMI concept, Ralf Wittgen of Promapp, CHS only shows a part of the whole picture, as it analyzes only parameters that impact the value the customer is providing to you, the vendor (such as references to YOU, revenue to YOU, engagement with YOU, relations with YOU, usage of YOUR solutions, etc.). In other words, it’s not a customer-centric way of thinking.

As we discussed in our previous sum up of the Totango CS Summit, and in our recent conversation with Peter Armaly, the future of Customer Success involves becoming truly customer-centric, which means that while it will always be necessary to manage your relationships with your clients, there needs to be another element that focuses on what value you are providing to your customer.

Or rather, how you are able to add this value in the long-term.

Because even though you might have a wonderful relationship with your client, it doesn’t speak to whether they are ready to adopt what you have to offer, and if they are worth the resources to grow and expand their account.

This is not to say that CHS is irrelevant. It’s just that on its own it doesn’t provide a holistic picture. It’s only when you combine vendor-focused parameters with customer-focused ones that you can really get a solid idea about where you truly stand.

Taking it Further: The Customer Maturity Index (CMI)

And this is where CMI comes in.

While CHS measures the relationship between the vendor and the customer and aims to predict their future direction (churn, renewal, expansion), CMI measures the sophistication of the customer in running their function and consequently their ability to utilize and derive value from the vendor’s solution. CMI aims to identify the actions the vendor should take to address the customer needs.

To break it down, CMI is a sophisticated framework that Boaz and Ralf Wittgen worked on together to come up with a way to more accurately measure true Value to Customers, by working through a series of four steps. These are explained in more detailed in Boaz’ most recent blog post, but here is a summary below to give you an idea:

  1. Establish your CMI characteristics using the broad categories of i) Vision & Charter; ii) Organisation and People; iii) Process and iv) Technology & Infrastructure
  2. Define Maturity Levels for each characteristic using a scale of 1-5 (1= Low Maturity and 5= High Maturity)
  3. Calculate your CMI based on a clear process which groups together all characteristics and assigns a mean value to each one, and then a weight for each category
  4. Create Playbooks based on your CMI: This is where both CHS and CMI come together. By using a quadrant with a combination of both High CMI and Low CHS and four combinations of the two, we can now assess where the customer being analysed fits into the index and whether they should be Retained, Churned and Let Churn, Saved or Expanded and Leveraged.

By assessing where they fit in on the scale, you can better manage your resources and your time, and actually get a more realistic picture of how successful you clients really are.

How Can We Apply this to our Business?

As a startup with constrained resources, it can be difficult to dedicate time to finding ways to apply a theoretical framework with so many practical priorities to address. But, we found this concept so powerful that we’ve decided that the CMI is an approach we will be using to guide our weekly “locker room” discussions with our Deployment Consultants, and will be an integral part of our approach to moving forward as a startup in growth phase.

So from our perspective, regardless of whether you have a large or small team, we think it’s important to find ways to apply the principles of this methodology to your business, so you can effectively gauge Customer Success.

In the next post, we’ll be talking about some more Customer Success initiatives that speak to the necessity of having a customer-centric approach. In the meantime, what are your thoughts on CHS and CMI, and the combination of the two? Let us know in the comments below.

Are you interested in finding out more about how to better manage your Customer Success, and how you can better adapt to changes in the technological landscape? Get in touch with us to find out more.

About the author

Jenna Van Schoor

Jenna Van Schoor

Jenna is Chaos and Rocketfuel's researcher and writer on everything related to the future of work.

Passionate about travel and new ways of thinking, she believes there is so much to be discovered when it comes to new technologies, perspectives and design.

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