Risk Management at Scale Part 1: quantitative vs. qualitative


No matter what you are selling to another person or company, whether it's a service, software or a cup of coffee, understanding risk factors and designing easy, scalable ways to stay ahead of churn are paramount to your company's success.  In order to begin this process, you must start thinking about your customers from their perspective and find ways to determine their "health" as it pertains to their relationship with you.

Most of our clients have some semblance of a qualitative health score on their customers when we begin working with them.  This usually comes in the form of either a traffic light (green - yellow - red) or letter grade (A-F) score given by a Customer Success Manager (CSM) to a customer based on the perceived relationship.  Sometimes this information is stored in a Customer Relationship Management (CRM) tool (like Gainsight or Salesforce), an internal customer wiki (in Confluence or Asana) or even in a spreadsheet (Excel or Google Sheets).  This data point may be updated regularly (daily or weekly), but more often is only updated monthly, quarterly or even "periodically", which translates to: when I remember to do it or if I'm told I have to...

We'll talk more about the structure of health scores in Part 4: building a framework, and we'll discuss update frequency in Part 5: change management and automation.  In this post, we'll describe the two major ways to evaluate customer health: quantitative and qualitative.  

Let's start with the easy one, or at least the one that seems easy on the surface: qualitative health.

qual·i·ta·tive  /ˈkwäləˌtādiv/ adjective: relating to, measuring, or measured by the quality of something rather than its quantity.  "a qualitative change in the undergraduate curriculum"

To put it simply, this score "bucket" relates to the quality of the customer's experience with your product or service.  Are they happy with it? Are they delighted by the experience?  How do they feel? 

Every interaction with your customer can give you a clue about their happiness with your company, your product or service and your team.  Accurately capturing this information after each interaction is vital to ensure that you are mitigating risk as it arises.  The tricky part is not capturing this information, per se, but doing so accurately.

The place that a lot of companies and team members slip up is through the assumption that "no news is good news".  Regarding customer health, this is ABSOLUTELY NOT the case.  No news is usually terrible, horrible, very bad news. 

In general, the less engaged your customer is with your company, the higher the risk of them leaving.  Why?  Because it's really easy to "switch vendors", but it's really hard to fire a person.  When your customer is engaged with your company through your customer team, they are interacting with people.  This interaction creates relationships and, done well, makes your customer very hesitant to "fire" you.  Without that relationship, you're just another tool that can be replaced with a newer, cooler, better, more interesting tool.

We'll dig deeper into this subject in Part 2: collecting the data.

Now let's get into the real meat and potatoes of customer health: quantitative scoring.

quan·ti·ta·tive /ˈkwän(t)əˌtādiv/ adjective:  relating to, measuring, or measured by the quantity of something rather than its quality."quantitative analysis"

This is where a lot of our customers freeze up.  How do you quantify your customer's health?  Isn't health something soft and "squishy", like relationships and happiness?  The answer is... well, sorta. As discussed above, your customer's happiness is a key part of their overall health, but there are tangible, measurable aspects of their interaction with your company and your product that directly impact their happiness.  How much value are they seeing out of your product or service?  How often do they use your product or engage with your service?  How much impact is your product or service creating in their business?

The great news is: all of these items are quantifiable, collectible and potentially meaningful indicators of the health of your customers.  Throughout this series, we'll describe not only how to collect the data and analyze it (Part 2 & Part 3), but how to leverage it to prevent risk (Part 4) and do it consistently at scale (Part 5).  To get updates when we publish the additional parts of this series, be sure to follow Sandpoint Consulting on LinkedIn.

For more information about Risk Management, or to request a customized Risk Management Workshop for your team, send us a note at contact@sandpoint.io