Whether your business has a small number of high paying accounts, a large number of low paying accounts, or a mix, a customer engagement score is a useful tool for managing your customer base. It makes it easy to segment your customer base, prioritize engagement strategies, and measure the impact of those strategies. If you don’t know what a customer engagement score is, read our brief blog on it: what is an engagement score?
1. Segmenting Your Customer Base
As a customer engagement score is a single number representing the health of your customers, it’s very easy to segment them. For example, if your customer engagement score has a range of 1-100, you could have segments like:
<40 – very low engagement; highly likely to churn and not renew
40-80 – medium engagement; most customers will renew, but renewal rates aren’t at acceptable levels
80-100 – highly engaged; very high renewal rate and low churn rate
While you probably wouldn’t have fewer than 3 segments, you can easily get more granular by having more buckets with tighter ranges.
Once you set your buckets, step 1 is to test them. You can either use historic data if you have it, or track these buckets over time from this point forward. What you need to do is measure the churn rate by bucket and calibrate it so that your best segment(s) have very low churn. You then need to check these buckets on occasion as your customer base and product will evolve. If the churn rate by bucket begins to fluxuate, you can either adjust the buckets or recalibrate your engagement score.
Once you have the buckets, the rest is simple! You can use these segments in several ways:
Product – can contact the folks near the top of the engagement score for feedback on what they use the most and what really engaged them
Marketing – can target the mid level buckets with email and try to promote activities and product features that will get your customers more engaged
Account Management – can reach out directly to the lowest buckets and find out what’s wrong
Renewals – you can optimize renewal processes to spend more time on customers that are on the fence or unlikely to renew and less time on customers you know will renew
Social Media Engagement – ask your most engaged customers to be influencers and share their experiences with your product
Marketing (part 2) – approach your most engaged customers for case studies
Sales – if you have free trials, your sales reps can focus on customers with a high score as they’re likely to close
The above is just a small sample, but as you can see there is a lot you can do!
2. Prioritize Engagement Strategies
In addition to using buckets of customers by engagement score in some of the examples above, you can also use them to prioritize your engagement strategies. The best way to demonstrate this is through an example:
Company ADG has 4 product lines:
Small Business – 1000 customers; $100/month
Basic – 1500 customers; $400/month
Premium – 500 customers; $1000/month
Enterprise – 50 customers; $2,500/month
They also have 3 buckets of engagement scores:
<40 – at risk customers (10% churn rate)
40-80 – middle of the road customers (5% churn rate)
80-100 – extremely low churn rate (1% churn rate)
with the following breakdown:
· <40 – 300 customers
· 40-80 – 500 customers
· 80-100 – 200 customers
· <40 – 400 customers
· 40-80 – 600 customers
· 80-100 – 500 customers
· <40 – 100 customers
· 40-80 – 100 customers
· 80-100 – 300 customers
· <40 – 5
· 40-80 – 10
· 80-100 – 35
With that breakdown, you can new figure out how much at risk revenue you have per product:
300 customers * $100 MRR = $30,000 MRR
400 customers * $400 MRR = $160,000 MRR
100 customers * $1000 MRR = $100,000 MRR
5 customers * $2500 MRR = $12,500 MRR
As you can see, it was a very simple process to find out which customer base is going to have the biggest impact on your bottom line if not addressed. Therefore, you could ask your team to really look at the Premium and Basic product lines and what can be done to improve their engagement.
3. Measuring the Impact of Customer Engagement Strategies
Another major benefit of using a customer engagement score is that you can easily measure the impact of your strategies. Here is an example showing how it works:
Company ADG sends an email blast promoting their product tips webinar on Facebook to all their product lines. In this blast, they get the following results:
Small Business – 10% attend the webinar (100 customers)
Basic – 10% attend the webinar (150 customers)
Premium – 20% attend the webinar (100 customers)
Enterprise – 10% attend the webinar (5 customers)
After this webinar, they can use the customer engagement score to measure the impact:
Small Business – Attendees saw an average bump of 20 points
Basic – Attendees saw an average bump of 35 points
Premium – Attendees saw an average bump of 10 points
Enterprise – Attendees saw no bump
Right away, you can tell this kind of webinar isn’t that popular with the premium and enterprise products. For the Basic and Small Business lines, there was definitely a bump, but what was the impact? Let’s calculate this for the basic product line:
If after the webinar, 50 of the attendees moved from the <40 bucket to the 40-80 bucket. This means, on average, their churn rate went from 10% to 5%. With a $400/month MRR, we can calculate the boost in LTV.
First, calculate the LTV if those customers were still in the lowest engagement score bucket:
(50 * $400)/ 10% = $200,000 LTV
Now calculate their new LTV given they’re in the middle engagement score bucket:
(50 * $400)/ 5% = $400,000 LTV
$400,000 – $200,000 = $200,000 bump in LTV
You would then calculate this across all product lines and sum it up.
To be fair, the bump in LTV isn’t going to be exactly $200,000 as those 50 customers are at various stages of their lifetime w/ company ADG (some are new, some are a few months old, others might be a few years old), so I wouldn’t say this webinar produced $200K in additional LTV. However, what you can do is use this as a baseline to compare this webinar with other webinars.
For example, if adding up the LTV change for all product lines was $650K for this webinar, and next month it was only $150K, this does help you understand which webinar was the most effective. You can now dig further to understand why and then try to reproduce those results!