Executive Summary

Customer health is at the heart of customer success. It not only informs but also drives appropriate action when used properly. It is to customer success what the sales pipeline is to a sales VP—the predictor of future customer behavior. Good customer health equates to a high chance of renewal and upsell. Poor customer health means a lower chance of renewal and upsell. So just as sales VPs manage through their pipeline, customer success teams must manage through customer health.

Given that retention is life or death for a recurring revenue business, monitoring and managing customer health is a core activity for customer success teams: it must be done and done well—and relentlessly.

The title of this law is one of those phrases with which you can play an old word game—read it aloud four times, emphasizing a different word or phrase each time:

• Relentlessly monitor and manage customer health.
• Relentlessly monitor and manage customer health.
• Relentlessly monitor and manage customer health.
• Relentlessly monitor and manage customer health.

Each and every idea in this phrase is equally valuable if you are to execute on an aggressive customer success vision. Let's set the stage first and then come back to analyze each piece independently.

As has already been articulated over and over, the subscription business model demands that we pay attention to customers. Not because we want them to be referenceable—although that's nice. Not because we want them to do case studies—although that's nice, too. And not even because our CEOs want to proclaim that they are customer focused—which they will all claim, regardless of whether they practice what they preach. No, this is different. We have no choice but to pay attention to our customers and for one very simple reason—it's life or death. Recurring revenue businesses just can't survive unless they drive success for their customers, because successful customers do two things: (1) they renew their contracts at a high rate and (2) they buy more stuff from you. It's really is as simple as that. And subscription, or pay-as-you-go, businesses will not survive without those things happening.

To be fair, it's never been OK to not manage and nurture customers. We really do want them to successfully use our products and talk about them to others, to be willing references and do other marketing-related things with and for us. And most companies and CEOs truly want customers to be successful for nonfinancial reasons. It just feels good to have customers deriving real business value from the products we've worked so hard to deliver to them. But it was never about desire; it was about motivation. It's one thing to want your customers to get business value, but it's a whole other matter to have your business's viability at stake.

And this isn't an exaggeration for the sake of making a point. The numbers are inarguable. In the perpetual license software world, a very high percentage of the customer's LTV is collected at the time of the initial sale, perhaps as much as 90 percent. In the subscription economy, it's quite likely that the initial deal is worth less than 10 percent of total customer LTV. Let's take a $25,000 annual contract as an example. Customer lifetime would be projected at 7 years minimum but more likely 10 or more years for a healthy customer. That means that this customer will do nine renewals. Even at an annual growth rate of only 5 percent, the customer will end up spending well over 10 times the value of the initial deal during the lifetime of the relationship. And that doesn't even count the nonrecurring dollars from services and training or the 2nd order revenue impact discussed previously.

Thus, the birth of customer success—an organization designed specifically for the intent of driving value to every customer through the use of your product, resulting in high retention rates and a healthy business. This makes for a pretty simple metric for measuring what these customer success people are accomplishing—net retention. But what are they actually going to do every day?

Relentlessly monitoring and managing customer health, that's what.

Let's tackle each part of that phrase in reverse order.

Manage

Such a simple word. So much meaning. Let's dig in. This word is at the core of what your customer success team, if you have one, will actually be doing on a daily basis. In fact, if our thesis is true—that an accurate assessment of customer health is a clear indicator of loyalty and a predictor of future customer behavior—then any activities your customer success team undertakes that aren't designed to drive customer health scores up are activities they should probably stop doing. To lean on a sales analogy again, any activities performed by your sales team that aren't either building pipeline or moving opportunities through the pipeline are not good uses of team members' time.

Creating a customer health score is not an academic exercise. It has a clear purpose. But, if done right, it also creates actionable insights for your team to operate on. For example, if you determine that a customer's health score should go down if they give you a low survey score, that low survey score should be acted on in some way to reverse a negative course for that customer. This is exactly what we mean when we say manage. Take action. Don't just observe and ponder. Do something! Analytics or insights with no action are largely useless. At the risk of belaboring the sales comparison, it would be like a sales representative reporting that a deal in her pipeline has been at the same stage for 180 days. Observing and reporting this fact does nothing to advance the business. “Move it or lose it” is likely to become the VP's admonition long before 180 days have passed.

Let's go back to establishing a health score by developing the components of an overall score. These components of overall health are extremely important to your individual CSMs, because they provide them with the power to change the overall score. Think about it this way. If all you have is an overall score, how would you, an individual CSM, move that score up for an individual customer? Ah. Umm. Hmm. Make the customer happier? Right. In other words, just go boil the ocean, please.

But let's look at the same challenge when you have a component-based score. Let's say there's a component called product adoption that measures the percentage of purchased, active licenses. Now, if you're a CSM and you want to move a particular customer's health score up, and you see that the customer's product adoption score is really low, with only 13 of 100 licenses active, you suddenly have some very specific action you can take. You can be certain that if you get 60 users actively using your product instead of 13, the overall score will go up significantly.

So establish a customer health score, and then manage to it under the assumption that moving health scores upward indicates increased loyalty and the likelihood of future good things—renewals and upsells.

Monitor

Perhaps this is becoming way too obvious, but we've come this far, so let's keep going. To manage customer health, you must monitor it. Technology can play a huge role in all the areas we've discussed, but it's essential for helping you monitor. If you don't have some kind of system for monitoring your customer's health, you'll be stuck analyzing lots of spreadsheets and reports and trying to draw actionable conclusions from them. This is a reasonable way to start down the path of turning this into something much more scientific and systematic. It's actually helpful to experience the pain of doing something manually, to provide the proper motivation for automating it. It's also useful to create processes that are initially not systematized as you work the kinks out and then automate them. No sense in automating if the process isn't reasonably refined. You'll end up just making mistakes faster.

You can't manage something that you are not monitoring, so this is obviously critical no matter how you do it. The three elements of our law that we've discussed so far are equally important. Any one without the other two is not useful—it's folly. So please don't try it.

Relentlessly

And here's the adverb in our phrase. One could argue that it's not as important as the other three because it's simply describing how to do the particular task. After all, monitoring and managing customer health sounds like a really good idea. And it most definitely is. But as a wise man once said, “If it's worth doing, it's worth doing really well.” We all agree that what we're discussing here is worth doing, so why not do it really well by being relentless about it? In fact, it would not be hard to argue that if this is not done relentlessly, it may not be worth doing at all. We definitely live in a world of very high urgency on so many things we are doing. But if we agree that driving loyalty (customer success) is fundamental to the long-term viability of the recurring revenue business model, then do we really have any choice but to be relentless about it? Is there any doubt what your CEO's answer to that question would be?

For most of us, daily work activities are like gas in a vacuum. They expand to fill the entire space. If we had nothing else to do, e-mail would likely consume our entire workday. And we'd probably all agree that we wouldn't be very productive if that's all we did. So why not apply the word relentlessly here with no qualms? We're talking about something that must be done, by people whose accomplishments will be defined by how well it is done. Relentlessly seems like the only logical way to proceed.

Perhaps the best way to summarize this law is with the following meme:

Relentlessly. Monitor. And Manage. Customer Health.