This week's Newsletter:
CUSTOMER HEALTH SCORES ARE USELESS.
Here's why and what to do instead...
A customer health score has ONE JOB: to reduce customer churn by identifying the at-risk customers who can be saved with intervention.
I've built a lot of customer health scores in my career, and I've used and analyzed many more. But I've never seen them achieve this purpose.
This is true even when the health score accurately "predicts" churn. (keep reading because I explain this paradox below ↓)
There are 2 KEY REASONS why customer health scores cannot be used to reduce churn:
❶ Most health scores rely partly on Satisfaction/Sentiment surveys like NPS that have nothing to do with churn risk.
📈 Our research consistently shows that NPS and other customer satisfaction scores have ZERO correlation with retention. Customers who give bad scores are just as likely to renew as those who provide glowing scores.
In fact, satisfaction scores are WORSE THAN USELESS because they lead to wasting time on the "Negative Nellies" who are actually going to renew anyway!
A better indicator is simply whether customers responded to the survey at all. Nonrespondents are more than TWICE as likely to churn! But, only a small share of customers respond to these surveys (usually less than 10%), so this is not a very useful indicator.
❷ Customer health scores rely heavily on LAGGING indicators of customer failure. The most important is UTILIZATION.
Although these accurately correlate with churn, the problem is that they appear TOO LATE to be useful.
📈 Our research shows that by the time customer usage has dropped meaningfully, interventions are highly ineffective. Less than 10% will be "saved."
This is because it takes time and customer willingness to get them back on track.
📉 This is why, even if your health score accurately predicts churn, it's still useless for moving the needle because it identifies risk too late.
WHAT TO DO INSTEAD:
To have a meaningful impact, we need to identify LEADING risk signals, even if they are less accurate.
👉 The key to reducing churn is knowing a customer is failing before they do. 👈
THESE ARE THE KEY LEADING RISK INDICATORS:
1️⃣ Customer Fit: this should be visible even before the customer purchases
2️⃣ Customer Engagement: early engagement is a useful signal of success
3️⃣ Customer Behavior Change: this is the most useful leading indicator
4️⃣ Measurable Results: this is the most predictive leading indicator of retention
WHAT TO DO INSTEAD OF A HEALTH SCORE:
✅ Operationalize consistently tracking each of the above factors for every account from the beginning and diligently keeping them current. The most important are Behavior Change and Measurable Results.
✅ When any signal appears, mark the account RED and immediately action it with a standardized intervention playbook specific to the risk.
This simpler approach requires less effort and is much more effective!
Recent Webinar: How Sales can move the needle on churn! With Chad Rawlings
YOU CAN ONLY CHOOSE ONE ➜ SATISFACTION 😄 -or- RESULTS 📈
People say we should make our customers successful AND happy. But there's a big problem with this:
► Surprisingly often, there's a conflict between driving customers to results and improving customer satisfaction.
To illustrate, here's a common situation you've almost certainly faced:
🎬 SCENARIO: A customer is not getting good results because they're not doing what it takes to succeed with your solution. But they are sure they're doing it right. You are faced with a dilemma:
↳ If you tell them they're doing it wrong and challenge them to change, you risk upsetting the customer.
↳ If you ignore the problem to keep them happy, they'll probably fail and eventually churn.
Before you say, "It's all about how you handle it," you should know that this particular customer has already warned you not to challenge them. [If you've worked with many customers, you know that this situation is not rare.]
❓ WHAT DO YOU DO?
The answer is to prioritize. Priorities are powerful because they ensure that what is essential always comes first.
Both customer satisfaction and customer results are GOOD things.
↳ But they are not equally IMPORTANT.
Companies cannot grow unless most customers stay for a long time. So what matters most is to understand: WHY DO CUSTOMERS STAY?
Well, we know what it isn't 👇
📊 Customer retention data consistently reveals there is ZERO relationship between how happy customers are and how long they stay.
❗️Customer satisfaction does NOT drive retention.
👉 CUSTOMERS STAY TO GET RESULTS! 👈
📈 Our research shows that BY FAR the best predictor of customer retention is MEASURABLE CUSTOMER RESULTS!
Customers with measurable results stay 6 TIMES LONGER than customers without.
THEREFORE RESULTS MUST BE THE PRIORITY:
👉 Always prioritize driving measurable results OVER customer satisfaction in every situation where they conflict. 👈
😬 It can be very intimidating to challenge customers to change their behavior. Here's what I do to make it work:
✅ I try my best to be diplomatic and demonstrate that I'm on their side.
✅ I patiently connect the dots between their behavior and getting good results.
✅ I look for ways to improve their experience without compromising the focus on their behavior change.
THE GOOD NEWS is that in all but a few cases, customers respond positively to efforts designed to make them successful!
Nearly all customers come to see that I have their best interests at heart and that my advice is based on the company's extensive experience in driving significant customer results.
I've found that I can achieve both satisfaction and results, but only if I know which one comes first!
QUOTE OF THE WEEK:
Always prioritize driving measurable results over customer satisfaction in every situation where they conflict.