Toward Healthier B2B Relationships

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Toward Healthier B2B Relationships

By Bryan Hochstein | Harvard Business Review Magazine | July–August 2024 Issue

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The costs associated with developing B2B products and acquiring customers are substantial. In fact, they are often significantly higher than the first year’s revenue produced by selling the product. But it’s relatively easy for customers, whose up-front investment costs are low, to terminate a relationship with the seller if they don’t quickly capture the benefits promised to them during the sales process. Low customer-retention rates can soon lead to poor financial performance and negative word of mouth. That’s why it’s important for companies to understand—and care for—the health of their customer relationships.

One solution that’s growing in popularity is the use of customer-health scores.  On the basis of their experience, and more than 200 interviews with executives, the authors have arrived at a model that any B2B brand can use to measure and improve customer health.

Monitoring the quality of B2B companies’ relationships with clients is traditionally the job of the customer-success team. The function was pioneered by Salesforce in the early 2000s.  Customer health takes customer success a step further by focusing more intensely on data and scoring.  The authors find it useful to approach customer-health scoring along three dimensions: customer-relationship quality, product usage, and value realization. Adopting a multidimensional customer-health score will allow you to keep a closer watch on your customer relationships. To find yours, take the average of your scores across all three dimensions. Then use the following rubric to determine the health of your relationships.

1. Great health: Scores of 70 and higher typically require only proactive maintenance, monitoring, and a routine of goal setting and validation. Customers with these scores should be considered potential advocates of your business.
2. Good health: Scores between 51 and 70 require active attention; you’ll need to develop more product use, engagement, and value with these clients. They are not at high risk of churn, but you want their health scores to trend upward, not downward.
3. At-risk health: Scores of 50 and below require greater scrutiny by your leadership team, who should assess the opportunity cost of intensive efforts to save the relationship versus spending time nurturing better-scoring customers.

As the company has refined its scoring and gained experience with the process, five key learnings have emerged, which most B2B businesses could apply. (1) The scoring system must be calibrated to your data. (2) A well-calibrated scoring system is effective at predicting churn. (3) Once validated, the system helps identify areas for concern and action. (4) There are challenges to overcome with health scoring. (5) A flywheel effect occurs as health scoring matures, leading to improved decisions, opportunities, and direction—even beyond retention prediction.

3 key takeaways from the article

1. The costs associated with developing B2B products and acquiring customers are substantial.  But it’s relatively easy for customers, whose up-front investment costs are low, to terminate a relationship with the seller.  That’s why it’s important for companies to understand—and care for—the health of their customer relationships.
2. One solution that’s growing in popularity is the use of customer-health scores.  It takes customer success a step further by focusing more intensely on data and scoring.  The suggested approach measures customer-health scoring along three dimensions: customer-relationship quality, product usage, and value realization.
3. As the company has refined its scoring and gained experience with the process, five key learnings have emerged, which most B2B businesses could apply. (1) The scoring system must be calibrated to your data. (2) A well-calibrated scoring system is effective at predicting churn. (3) Once validated, the system helps identify areas for concern and action. (4) There are challenges to overcome with health scoring. (5) A flywheel effect occurs as health scoring matures, leading to improved decisions, opportunities, and direction—even beyond retention prediction.

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Topics:  Strategy, Business Model, Customer Relationship Management, Marketing, Sales, Data, Analytics