Measuring Relationship Health

The Customer Health Score (CHS) measures the health of the customer-vendor relationship, and aims to predict its direction: will the customer churn, renew, or expand? CHS is particularly useful when defined within an effective segment of customers. While strongest Customer Success (CS) organizations segment their customers based on dimensions such as size, stage and geography, a glaring missing dimension is the maturity of the customer. The Customer Maturity Index (CMI measures the sophistication by which the customer runs their function and consequently their ability of to effectively utilize and derive value from the vendor’s solutions.

1. The Problem: The Current Customer Health Score is Useless

Customer Health Score: The Customer Health Score has become a prominent metric for CS executives and Customer Success Managers (CSMs). Every CS team measures it and every Customer Success Management (CSM) platform solution presents it at the top of their dashboard. It is positioned as the ultimate representation of Customer Success and the best predictor for future customer engagement (churn/retention) with you, the vendor.

Most Customer Health Scores are defined based on both the level of usage of the vendor’s solutions, and the level of interaction between the two companies. Many companies also include customer satisfaction ratings, NPS scores, and commercial relationships in that calculation. Data from leading Customer Success Management platform vendors indicates that almost 100% of the factors companies use in order to assess their customers’ health scores are relative factors, meaning they measure vendor-customer interactions (personal, financial, via the product usage, etc.) only.

Customer Segmentation: At the heart of effective Customer Success management is customer segmentation. Segmenting customers enables your CS team to better understand your customers and align activities to foster their success. You most likely are already segmenting your customers based on some combination of the following criteria:

· Size: Small and medium-sized business (SMB), Mid-Market, Enterprise, etc.
· Stage: On-Boarding versus On-Going, etc.
· Geography: Americas, EMEA, APAC, or East-Coast, Midwest, Central, etc.

Some also include verticals segmentation (e.g. Telecom, Retail, Automotive) to add additional layers of insight.

Segmented Customer Health Score: If you combine the above two analyses, you provide your CS team with a more sophisticated view of your customer community, and can also make the CHS more relevant to specific industry segments. This is especially true, and much more actionable, if you can create benchmarks for each segment and the data can identify trends over time.

Based on this segmentation, you design your playbooks to help you improve the CHS. The assumption is: if your customers are showing the same ranking, they will benefit from the same activities (aka playbooks). Right?
However, don’t you find that there seems to be a missing element that makes the data “nice to show” on a report, but not as actionable as you think it should be? Do you not have multiple customers with similar health scores, yet you know they are in very different places, requiring different actions to foster success?

Your CHS is Insufficient to Define Your Playbooks!

A Real Life Case Study

Here is a real-life example from our experience to illustrate this challenge. Mashery provided API Management solutions to customers in a multitude of industries, from startups to very large enterprises. Below are characteristics of two of our customers who had the same health score, but completely different fundamental challenges. Both customers were large enterprises, headquartered on the west coast of the U.S., with whom we had relations for multiple years, so they were of comparable size, geography, and stage.

Customer A was a large retailer utilizing the Mashery multi-tenant platform to help accelerate the rollout and availability of their mobile apps while reducing the costs and effort of supporting the high variability of demand against a complex infrastructure.

Key criteria for their high CHS includes:

· Very high usage data (number of APIs, number of API calls, etc.)
· Very good relationships with many people on their team, both executives and working level team members
· Excellent support statistics; exceeding SLAs for both response and resolution times
· A solid ongoing set of expansion projects (i.e. high Program Expansion score)

Customer B was an information management provider which focused on providing real-time information to a large set of businesses. They utilized our platform to ease the connectivity and management of the multitude of different partners and customers accessing their systems on demand.

Key criteria for their high CHS are:

· Very high usage of the product
· Strong relationships at multiple levels across the organization
· A track record of expanding their program
· Solid support statistics and CSAT

Same High CHS, but Dramatically Different Playbooks!

Despite the high Customer Health Scores, these two customers were dramatically different in what we needed to do to make them successful, manage our relationship with them, and grow our business with them. It was because of a few additional characteristics, which have little to do with their level of relations with us (Health Score) and a lot to do with the maturity by which they managed their own business.

Customer A:
· Operated from a single office
· Supported a single business that
· Grew organically
· Had a very strong team of highly professional people who knew exactly what they needed and had a plan of action to get there, and
· They were pushing us on features, service levels and execution. For example, whenever the name of their VP of Product popped up on my iPhone screen, I knew I had to be on top of my game, as sharp as I could be to assess his requests and come up with a response to them.

Consequently, managing our relationship with them (the “success plays”) required that we address their ever-increasing demands. Our joint Quarterly Business Reviews (QBRs), which they pushed for as much as we did, focused on numerically quantifying past results, as well as facilitating deep discussions on our evolving product roadmap. As long as we did that, the backlog of potential new projects to expand the program kept growing, the customer derived more value from our solutions, and we could, in turn, increase our revenue from them.

Customer B: on the other hand,
· Operated from multiple offices nationwide
· Supported three very different businesses they were working to consolidate since they
· Grew by acquisitions
· Their teams, not the least because of the very different businesses they came from, had varying degrees of technology understanding and capabilities
· They had to invest significant energy in consolidating their business (different systems, different technologies, different teams, different customer types, different operating procedures, etc.).

Consequently, our efforts had to focus on helping the team that was using our solution to justify and promote the use of our system within the other businesses. We had to spend significant effort educating the different teams on the value of our services, why they should use them, and why it was of value to them to share a vendor with the other businesses. We had to stress different features to different businesses; some even needed very “basic” capabilities to just start their journey along the API Management adoption. Quarterly Management Reviews with them, which we had to work hard to get on the calendar, were focused on what else can we could do to help them promote the solution among other teams and how to get budgets to expand the solution within the existing ones.

2. The Rationale: The Evolution of Customer Success

Before we dive into the importance of assessing Customer Maturity, it is useful to point out the progression, continuous improvement and evolution of the CS profession over time. In the past few years, as the Customer Success field has been maturing, a greater depth of understanding of the subtle differences among terms, metrics and success factors in the field has been emerging.

For example, some of you might still recall needing to explain to people why Customer Success is not the same as Customer Satisfaction… CSAT is a feeling and attitude, definitely important as part of building strong, lasting relationships with customers, but not useful for having a tangible impact on THE CUSTOMER. CSAT is therefore measured as an abstract number that has no meaning in and of itself (e.g. “47” or 75%).

Customer Success, on the other hand, is the ultimate measure of the value the customer derives from the solutions, and the value we, the vendor, can in-turn derive from that customer. Thus, it is measured in almost all cases in monetary terms. This question of CS versus CSAT is all but left by the wayside now.

This leads companies to refocus more of their attention on the value the CUSTOMER gains from the solutions, and track that value separately from the value the vendors gain from the relationship. This thoughtful differentiation between adoption statistics (merely the activities the customer takes in the vendor’s solution) and the value from those statistics is a positive step in the right direction. It is becoming clearer to companies that the success the customer derives from the vendor’s solution is both a critical leading indicator and a strong predictor for the value the vendor can derive from the relationship.

3. The Solution: Assessing Customers’ Maturity to Guide CS Actions

We believe the next step in the evolution and sophistication of the Customer Success field is to realize that Customer Health Score alone is not comprehensive, and a Customer Maturity Index is needed to best assess the actions required to ensure Customer Success.

Therefore, we reason that:

Effective Customer Success management required Customer Maturity assessment!

The concept of “maturity” is not new in the business world. Among the most common use cases are:

· Software development teams are applying CMMI (CMU’s Capability Maturity Model Integration) processes,
· Process managers often utilize the PEMM (Hammer’s Process and Enterprise Maturity Model)
· Sales teams apply qualification criteria to assess the readiness of their prospects to be able to utilize the vendor’s solutions.

It is time for Customer Success teams to incorporate this concept into their operating methods linking maturity models to CSM Health Scores and other retention/expansion models.

While the Customer Health Score (CHS) measures the health of the customer-vendor relationship, the Customer Maturity Index (CMI) measures the maturity and sophistication of the customer with which the CS team is working. This index measures the customer’s readiness to effectively utilize and derive value from the vendor’s solution. More specifically:

The Customer Health Score is a measure of the relationship between the vendor and the customer in the utilization of the vendor’s solutions.

The Customer Health Score is a measure of the relationship between the vendor and the customer in the utilization of the vendor’s solutions. It is aimed at assessing the health of those relationships, enabling the identification of actions to enhance, overcome, and capitalize on the situation and predicting the future direction with the customer (e.g., churn, renewal, expansion). The fundamental point here is that the components driving CHS are all based on the interaction between the two parties: the customer and the vendor.

The Customer Maturity Index measures the sophistication of the customer in running their function and is inherently independent of the customer-vendor interaction.

The Customer Maturity Index measures the sophistication of the customer in running their function. While this maturity clearly impacts the customer’s ability to utilize and derive value from the vendor’s solution, it is inherently independent of the customer-vendor interaction. CMI is aimed at identifying the actions the vendor should take to address the customer needs. Addressing these needs is correlated with, but not necessarily aligned to, the vendor’s immediate interests.

A Sample Use Case: A Company Selling a CSM Software

Since we all work in the Customer Success field, let’s assess Customer Success Management (CSM) Software solutions, as an example. Vendors in this space (a good list of them can be found on The Customer Success Association site), should assess the customer’s maturity (i.e. the maturity of the customer’s CSM team) separately from the customer’s health when deploying their solutions. Assessing the maturity of CSM teams should be based on assessing the strategy and charter, organizational structure, processes, and technologies of the CS team.

· Immature CS teams: It is possible that the CS team the CSM platform vendor is looking to sell their solutions to is too immature to use the solution. Perhaps they only have a couple of CSMs that are focused on providing high level support to their on-going customers. Maybe they do not yet have an executive in charge and therefore no clear goals (to be used to define CHS for example) or repeatable processes (that can be made into playbooks). In this situation, the sales team of the CSM platform solution may consider them an “unqualified lead” and decide to refrain from selling their solution to this prospect at the present time.

· Low to medium maturity customers: These customers would be overwhelmed and confused if approached with all the sophisticated tools of the CSM Platform vendors where their basic infrastructure is not yet fully set up. They can benefit most from being coached to establish fewer, simpler metrics (i.e., “walk before you run” strategy). It is quite probable that they need a lot of assistance in developing their processes (“success plays”) ahead of deploying sophisticated technologies, which are effective in scaling teams, but not founding functions. Vendors are likely to find that such customers require more consulting and education than software solutions.

· High maturity customers: On the other hand, mature CSM teams need sophisticated tools, like task automation and one-to-many campaigns, utilizing sophisticated reports such as cohort analysis and comprehensive goal structure with a highly developed matrix of leading and lagging indicators across a multitude of facets of work. They probably do not need a lot of coaching and education, but rather higher availability of the software and the most robust and advanced set of features the vendor can offer.

The required conclusion for our CSM platform vendor is that there is a strong need to assess the maturity of their customers to appropriately help them. Even though the CSM vendor is interested in selling their full suite of software solutions and limit the portion of services they provide, some customers may only be ready to utilize basic components and may require a lot of consulting, training and education before they can make effective use of more advanced features of the software solution. It seems only natural that customers whose CSM maturity is low should be managed in a different way than customers whose CS teams are very mature.

Split of Revenue Sources by Customer Maturity

The attached diagram illustrates the implications of Customer Maturity levels on the revenue split (software versus services) that the vendor can expect from the customer, and the actions needed to ensure the customer is successful:

Now, let’s combine these two themes, Health and Maturity, together. We all agree that the CHS is heavily influenced by the segmentation of customers. For example, it makes no sense to combine Health Scores of customers during early on-boarding stages with those of customers who have been working with the solution for the past three years. It is much more powerful and actionable to show Health Score trends for different regions and different industries, especially if different teams manage those segments separately. How else can you coach your team and assign accountability to them?

Consequently, assessing Health Scores of customers without considering Customer Maturity is likely to lead to lack of clarity in understanding true health, and prevent the vendor from setting up the right actions to foster the customer’s success. This will curb the vendor’s ability to maximize monetary and non-monetary value from the relationship.

4. A Framework for Assessing Customer Maturity

By now, we hope we have convinced you that understanding the customer maturity in running their function is critical to effectively manage the relationship between the vendor and the customer. The next step is to:

1. Establish the factors that determine the customer maturity
2. Calculate an effective Customer Maturity Index (CMI), and
3. Define the playbooks for the different CMI-CHS situations

A Framework to Calculate CMI

Defining the CMI is a business-specific endeavor. For example, the factors you need to assess in order to understand the maturity of a sales team (if those are your customers) are different from those of a development team, which are different from those of a Customer Success team, and so on. You will need to develop your own CMI assessment, just like you develop your own CHS.

The good news is that drawing on the experience from other maturity models, we identified a few best practices. Building on those, we have developed a framework, providing you with the blueprint that you will only need to tweak slightly to build your own CMI.

You should follow the following 4 steps to get there:

Step 1: Establish Your CMI Characteristics

Your CMI structure should strike a golden-path between comprehensiveness, simplicity, and flexibility to adjust to business changes. To that end, we suggest defining the maturity of a function by four core characteristics. Regardless of how sophisticated your measurement of these characteristics is, we strongly recommend sticking to these broader ones as they are well established in other maturity models like PEMM or CMMI.

When it comes to assessing each of the characteristics, multiple potential dimensions may be relevant. Below is a suggested 3-question structure, which we believe is a golden-path effort-to-quality for most teams. In each of the characteristics, there is one question about “what” is the function about, one addressing “how well” the function is implemented, and one referring to the relations between the function and other influencers. This way, there is a fair level of comprehensiveness, while keeping the number of questions to a minimum.

Step 2: Define Maturity Levels for Each Characteristic

We suggest assessing maturity of each of your CMI characteristics on a scale of 1 through 5, in which 1 is “very low” and 5 is “very high”. Use the table below to understand when to select which level.

The structure of your CMI collection template should look something like the example below with characteristics, factors, explanation/question and ranking.

Maturity characteristics including questions helping to determine the maturity ranking (value 1-5). Last columns show which maturity ranking was chosen for each characteristic in this example.

Step 3: Calculate the Customer Maturity Index

Now, you are ready to calculate the CMI. The process we follow:

1. Group factors by characteristic (Charter, People, Process, Technology)
2. Determine maturity level for each factor (i.e. driver)
3. Calculate the mean value for each CMI characteristic
4. Add weights to the maturity levels for each CMI characteristic
5. Calculate the value for CMI

Step 4: Create Playbooks based on your CMI Value

You may recall that we wanted to develop the CMI to provide additional insight into the CHS. Following that logic, we should develop a system of combining insights from the two metrics towards a plan of action. The structure below will help you determine for which scenarios you want to create which playbooks and by what priority!

Your Customer Health Score is Quite Useless – Adding CMI provides the insights that allow you to define your playbooks!

Low CHS and Low CMI (Bottom-Left: Red)

These are tough customers that may not be worth saving. Not only is your relationship with them weak, but also they are not mature in their business. To turn them into good customers, you need to invest in both in their relationship with you AND their business.

· Decision: PROACTIVELY CHURN OR LET CHURN: Do you want to invest on dual fronts? How much effort do you need to put in? Maybe you want to proactively churn them or let churn on their own.

· Your Playbooks: a) Proactively terminate the relationship with the customer or b) Minimize effort on customer to let them churn.

Low CHS, but High CMI (Bottom-Right: Yellow):

These are customers worth saving! Investment in their relationship with you (people and/or product) will increase your (the vendor’s) ability to expand the relationship. Since the customer is mature, they are ready to utilize your solutions and derive value from them.

· Decision: FOCUS ON CHS DRIVERS: What can we do to increase their CHS?

· Your Playbooks: a) Define means to increase usage of product, b) Deliver tailored product training, or c) Develop personal relations with executives or working-level customer contacts.

High CHS, but Low CMI (Top-Left: Light Green):

Those are probably your steady-state customers, the “cash-cows”. The relationships with them are good, so they are not likely to churn. However, since their CMI is low, they are not likely to expand and grow much either – at least not without investment in them via services.

· Decision: RETAIN: if you had service resources available and were interested in investing in services, these are the top customers to do it with. Note, 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. If you were not interested in investing in services, you should keep engagement with these customers to the minimum needed to retain them, but avoid wasting resources trying to expand the business with them.

· Your Playbooks: a) Engage the customer to deliver consulting services to them, or b) Engage partners to do the same.

High CHS, High CMI (Top-Right: Dark Green):

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 who love you!

· Decision: EXPAND AND LEVERAGE: They are mature and they like you – focus on expanding the business with them while at the same time leverage them for Customer Advocacy.

· Your Playbooks: a) Identify new use cases, teams or geographies, b) Develop case studies, c) Invite to your conference, d) Build an Advocacy campaign with, etc.

Customer Success executives interested in a slightly more comprehensive structure to assess customers based on CHS-CMI scenarios, may want to consider the below matrix.

Additional Thoughts and Suggestions

You now have a practical methodology to calculate CMI, and a framework for a set of playbooks to address the resulting scenarios. Before we finish, we’d like to suggest a couple of additional topics for your consideration.

1. The Only Constant is Change

Keep in mind that both the CHS and CMI of each customer can and will change over time. You should consider the following:

· Frequency of Measurement: Decide how often you assess the CMI ranking of your customer. CMI is likely to change less frequently than CHS, and collecting its data is more effort-consuming. Consequently, you will need to determine how often you want to collect and analyze the data (weekly? monthly? quarterly?).

· Change Over Time : It is valuable to capture the ratings and assess their impact over time. Just like with your CHS, cohort analysis of CMI and CMI-CHS scenarios can be very insightful on the way your business evolves and the results you show.

· Methodology Enhancements : Once you start to gather data, you should test your original hypothesis over the weights of the different characteristics and potentially realign them. You may also find value in changing the questions that help you measure and calculate your CMI.

2. Collecting the Data for CMI

Collecting the data needed for CMI is nontrivial, especially since:

· Most of the data is qualitative in nature (not numeric, but rather subjective assessment), and

· The data is external to you (it assesses your customers).

Yet, to have a practical tool, you must get the data into it.

There are two alternatives for that:

· CRM Integration : You can build fields for the needed data in your CRM, task your team to fill the data into them, then run an analysis on that data in whatever the tool that works for you: MS Excel, Google Sheets, Tableau, CS Platform, etc. Note: we really (read: REALLY!!!) hope the CSM platform vendors will develop this concept into their solutions for easy use

· Survey: In some cases, it may be easier – at least for a start – to develop a survey for the data collection. This is particularly true when you have relatively few customers and/or support them with high-touch models. In parallel to the way you wish to host the data, you need to determine WHO will provide it. The data can be supplied by the CSM, by the sales team, by the customer, or by some combination of the above. We believe that most companies who decide to deploy CMI into their processes will start by collecting information from their Marketing teams on their prospects, validate and maybe expand it via their sales team before the initial dea, and then validate again and expand even further by the CSM during the customer journey and lifecycle with the vendor.

3. The Audience for CMI

We strongly believe that CSM will be heavy users of the CMI analysis as it will drive clarity for them over required questions with their customers. But, other audiences may be interested in this new metric as well.

Among them:

· Marketing, for example, should find great insights in CMI to enhance the qualification process of prospects.

· Sales should find value in understanding the right mix of solutions to customers based on their maturity.

· Product Mgt should be interested in identifying additional features that may help customers by different maturity levels.

· Business Development: The BD/Alliances team should find the CMI a compelling tool to help engage with potential partners to provide the required consulting services to Low Maturity customers.

· Customers: Lastly, it might be very interesting to assess the value in sharing CMI data (and benchmark!) with your customers. You might choose to have your customer to fill out the CMI survey and in your next QBR meeting, share the results and discuss your recommendations for a call-to-action plan.

Conclusion

The Customer Maturity Index is a new frontier for the Customer Success function. It provides a framework for the kind of work many of us have been doing instinctively up until now without the ability to put a finger on what it was exactly that was missing. Now we know!

CMI provides a new dimension for CSM to understand their customers and therefore be able to develop more actionable playbooks to address customers’ situations. It is particularly valuable to understand that while CHS is focused on the relationships between the customer and the vendor and therefore is aimed at suggesting needed actions for the vendor to gain value from the customer, CMI is focused on the objective characteristics of the customer (unrelated to the vendor) and therefore shed light on the needs of the customer in order to maximize value to them.

We would love to hear your feedback and comments and gain your insights on how to enhance this new and exciting concept in the Customer Success world!

Enjoy!

Boaz Maor is a serial start-up executive with passion for Customer Success. He brings over 25 years of experience in a wide range of organizations from software to logistics to services. Considered one of the early executives to help drive the development of the Customer Success function, Boaz is a frequent speaker, writer and presenter at conferences and events. Most recently, Boaz found and led the Customer Success team at Mashery (acquired by Intel). Before that, Boaz held CS executive positions at newScale (acquired by Cisco) and FreeMarkets (IPO and then Acquired by Ariba). Boaz holds an MBA with honors from CMU.

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Boaz Maor

Customer Success Advisor, Consultant

Ralf Wittgen is an industry veteran building with more than 20 years of experience in managing professional services teams in Germany, the U.S., and in NZ, providing consulting, implementation, training, and support services mainly for software products. He was one of the early adopters of CS methodologies and is today a very enthusiastic, energetic and inspiring thought leader in the CS area. After serving as Vice President of Professional Services at Author-it Software Corporation in San Jose (California/USA), he is now holding the position as Chief Customer Officer at Promapp Solutions in Auckland, leading their Onboarding and CS Team.

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Ralf Wittgen

Chief Customer Officer, Promapp Solutions