Why health score does not predict churn

Irit Eizips
July 7, 2021

It's a very common practice for b2b companies to build a health score that's used to predict whether or not an account will churn.

Red accounts are considered less likely to renew, while green ones are presented as healthy and most likely to renew. Irit, however, is here to tell us that that's not always true. 


“Truth is, if you do have a health score, it probably won’t help to reduce churn, but on the bright side, we did see other indicators for getting a low churn. What we found was that companies using customer success software or CRM applications typically have a lower churn rate”. 


Irit says investing in these tools gives companies better data visibility, helps them decide if their team is focused on the right tasks and makes processes more consistent. 


To clarify, Irit is not against health scores in general, but rather indicates that this metric is often neither designed nor used properly. “Health scores should be used to say: "Is my CSM working towards the right goals? It should be a proactive measure”. 


If we constructed a health score properly, it would be a behavior-based metric. Unlike other metrics that are designed to help management, the health score should be built with the CSM in mind. The CSM should be thinking: “how can I drive ROI with each one of my customers?” says Irit.  


In other words, Irit's argument is that if the health score was established to measure how much value we've given to customers and how mature they are in their communication with us- then we'd get much better results at predicting churn.  Examples of that include looking at the level of executive engagement and the business impact that was created. 


We asked Irit to help us understand the starting point. If we want to design a metric to predict churn, what’s the first step we should take. “When you plan a metric, you can't just come up with a mishmash score that predicts churn AND also tells you what's the adoption level and whatnot. That doesn't work”. 


Eizips brings up the concept of “churn calculator” where you would define what’s the probability of churn for each account and if they were to renew, at what rate. The model includes adding the actual percents and dollar amounts. The CSM should rely on this, according to her, and not the health score: “The health score's sole purpose is to give the CSM an idea where to focus her energy”. 


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