Episode 31 Edited
===
Richard Ellis: [00:00:00] In 2025, US companies are projected to lose an estimated $168 billion annually due to customer attrition. With some industries seeing retention rates as low as 55%, despite the growing importance of customer health, nearly three quarters of business leaders say delivering a relevant customer experience is critical, yet only 50.
Richard Ellis: 18% rate their approach as highly effective as customer expectations rise. Understanding and improving customer health has never been more urgent. Today we dive into new insights on customer health, exploring how data-driven strategies and holistic frameworks are reshaping the way businesses build lasting healthy relationships.
Richard Ellis: Welcome to some goodness where we engage seasoned business leaders and experts to share practical guidance and tips to help new and future C-level leaders maximize their impact. My guest today is Dr. Jim Karrh. [00:01:00] Jim is a renowned professor, author, and consultant specializing in marketing, sales effectiveness, and customer communication.
Richard Ellis: He currently serves as a clinical instructor of marketing at the University of Alabama's Culver House College of Business. And is widely recognized for helping organizations lead more effective customer conversations to drive growth and stronger connections. And I'm happy to say that Jim has joined our Revenue Innovations team as a consulting principal.
Richard Ellis: Jim, welcome.
Jim Karrh: Thank you, Richard. It's a pleasure to be here. Love the podcast already. It's exciting everything that's going on with revenue innovations. Absolutely. And
Richard Ellis: today is a new topic that we haven't covered before, all around customer health. And so as you know, a lot of our listeners and our people out there, they influence, they care about, they're in charge of customer health, and so we're gonna talk about.
Richard Ellis: Kind of a new way of measuring customer health. And just by way of introducing, I think the industry standard for many, many years has been NPS scores. Right? [00:02:00] Net promoter score. Mm-hmm. But that's not enough. And so I want to dig into that, uh, with you. So let's just start with the high level. How have the way companies looked at and measured customer health changed over recent years?
Jim Karrh: Well, it has been changing and certainly what I've been seeing, and for a few reasons, oftentimes we see companies change their approach because what's been going on isn't working very well. So things like net promoter score. On the research side, I, I'm, I'm on the fence about NPS. I understand the allure of it, and it is useful in many situations.
Jim Karrh: It just doesn't predict customer retention very well. Mm-hmm. And it certainly doesn't predict customer expansion opportunities very well. So it tends to exist today probably in a marketing department and kind of out there on its own thing, and it serves some public relations, uh, benefit as well. So if you have something that isn't really predictive, it doesn't drive setting priorities, helping update our ideal customer profile, things like that, we're looking for [00:03:00] something else.
Jim Karrh: Now, what we do have today, Richard, is a lot of data. Yes. More than we know what to do with. So we have approaches that are incomplete at best, not that predictive. And we've got a lot of data and we're trying to think how do we use that and not be overwhelmed with it. So that's been driving a lot of changes and whether you call it customer health or something else, increasingly it is called customer health, and we can talk about some more modern approaches and some research and background that's driving change very quickly across organizations.
Jim Karrh: But yeah, the change is because we really need a change.
Richard Ellis: Yeah, it's insufficient it, it's a bit outdated. And so if that's the case, then it begs the question, well, what's the better approach? And you shared with me an article that some of your colleagues wrote for Harvard Business Review, which I really liked, and I want to dig into some elements of that because it seemed to introduce, you know, more of a multi-dimensional approach to customer health.
Richard Ellis: Not only getting into the relationship quality, which is kind of where. NPS [00:04:00] fits, but also product usage, value realization, you know, that potential opportunity for expansion that you were talking about. So let's kind of look at some of those new metrics or data points you think every company should be tracking.
Jim Karrh: And for everyone this relates to, it was Harvard Business Review. Uh, I think it was July, August of 2024. It's called Toward Healthier B2B relationships. And I did have kind of the inside scoop on this because two of my friends and close faculty colleagues, uh. Brian Hochstein and Clay Voes were the two lead authors, but this wasn't just ivory tower stuff.
Jim Karrh: One of the authors is head of a customer success team right now at a company called BigCommerce and some others that have a lot of practical experience, and they're working on this issue even today. So a very practical bent. One of the takeaways from this as part of our conversation is the best companies in the world are taking a look at their current approach, saying it's incomplete.
Jim Karrh: We got a lot of data and we're learning as we go. We're [00:05:00] iterating this and as we come to ways that. Our listeners and managers and leaders can begin this journey themselves is understand, hey, we're all making some educated guesses, but oftentimes based on data and feedback, we're able to refine that approach very closely.
Jim Karrh: What Brian and Clay and the and the others found are three dimensions, three components of what we're increasingly calling customer health these days. One of is called customer relationship quality, and there are probably. Some things that you have in your own organization today that would fill that bill?
Jim Karrh: Net Promoter score. NPS is going to be one of those. And so things like, are customers willing to refer us? Some is a little bit more subjective. So do we have customers who are willing to present with us at industry meetings, who are willing to work on case studies together, things like that. So are there things that point to a certain strength of the relationship?
Jim Karrh: Some, again, more objective and some a little bit more subjective,
Richard Ellis: like what [00:06:00] you've called out there, that it's not always just objective, right Here's, you know, a survey and a score that results from that survey or a published case study, right? It can include subjective elements like their willingness to participate in a conference there, or speak on our behalf or be a reference.
Richard Ellis: And so I think that's
Jim Karrh: important to call out. It is important, and if anyone is looking at how might we get started and who would use this and how can we coordinate our teams together? There's a real role here for intuition, gut experience to go along with data. So you're going to, one, we can talk about this in a little bit more detail in terms of how to get started, but you're a success team.
Jim Karrh: Your product team, your sales team, your marketing team, I think all have something to add to a more comprehensive picture. Of what customer I like that look like.
Richard Ellis: Yeah. If we have time, I want to get into kind of other teams' roles, uh, yes as it pertains to influencing or impacting company [00:07:00] health. But let's not get you off your top three.
Richard Ellis: So you have three dimensions. The first one was customer relationship quality. What's number two?
Jim Karrh: The second has to do with product usage or solution usage today, and this exists in your database. Right now. Mm-hmm. And you can look at it seats and licenses and are they using subscriptions and do we have maintenance agreements and how are those being used?
Jim Karrh: Are there tickets, service tickets? You know that we have a lot of problems associated with that. So those things, and that's a lot of the focus of what customer success teams are gonna be looking at or product teams. That's data that probably exists in your system today that we can draw out as well. And then the, the last part, so we got customer relationship quality, we got product usage, and there's one called value realization.
Jim Karrh: So this is also to a great degree, it's the province of customer success, but it goes back to sales. You know, why did they buy from us in the first place? What problem were they trying to solve? And whether it was cost reduction. Efficiency, maybe better [00:08:00] compliance and better reporting. All all of those sorts of things that went into the purchase decision in the first place, we're trying to track are they getting the results they want, and that's going to come out from actually keeping tabs on those customers through quarterly business reviews as we can talk about the work of the customer success team, the work of your account team.
Jim Karrh: Different people are going to have different lenses and paths to find that out, but obviously that's gonna be a big part of it as well. So those are the three pillars, if you will, for a modern conception of customer health.
Richard Ellis: I love it. I love it. I think that's a great framework. Obviously underneath each of those is gonna look a little bit different for each client, right?
Richard Ellis: And the types of services or products that they deliver. But in my experience, and I'm curious about your experience, but in my experience of those three, the last one, value realization seems to be the hardest. I see companies struggling. Quantifying real business impact of their solutions or services or products because they're not [00:09:00] intentional about engaging with the customer.
Richard Ellis: And, and a lot of times, you know, there might not be baseline capture before they implement, right? Or capturing the right data so that you can quantify later. And so that involves real collaboration with your client if you expect to be able to quantify the value you've realized at the end of some time period.
Richard Ellis: Your thought on that?
Jim Karrh: I agree with you, Richard. And it is more difficult. You have to dig and, uh, you look at the other areas, so you know, maybe you already have net promoter scores, customer surveys and things like that, that are already going. And you just draw those as an input. And you have the product usage data, which already is, is is there in your system.
Jim Karrh: So you just draw those, those elements out as well. This is where you do have to dig, ask the right questions, observe, um. You might say, Hey, sometimes it's hard to get customers to tell us what's going on, right? Um, sometimes it's hard they don't show up for our schedule QBR, well, we can dig into that a little bit more as well, but that's a really important [00:10:00] piece.
Jim Karrh: I think
Richard Ellis: if you need to dig right, and you think of, you know, mining for gold, you know you're not gonna find the gold if you don't do any digging. And I could even relate it back to the product usage. Uh, one of my clients, I was in the collaborative file sharing business and they shared with me that. The usage reports in many situations looked good, or, okay, hey, our clients using these, you know, using our tool, using our app, using our services.
Richard Ellis: But when they dug under the covers a little bit, they found that they weren't using it in a strategic way. Right. They were using it for just kind of some tactical little efficiency gains here and there, but they were really missing a big opportunity to create more value with it. So that's one area that requires digging is it's not just that they're using it, but how they're using it.
Richard Ellis: And I think the account teams and customer service teams could probably do a better job digging into
Jim Karrh: that area as well. And, uh, you can bet that that particular customer has competitors approaching them on a regular basis is [00:11:00] saying, Hey, do you know what our thing does here? Are you still strongly, you're, you're probably not getting, like, wow, yeah, your widgets better than the one that we're using today when they may not even know that they're current widget.
Jim Karrh: Works just fine.
Richard Ellis: Right, exactly. Exactly. Well, let's move on to, you know, we've kind of danced around the other teams in the go-to-market engine of a company in terms of how they influence or impact customer health scores. It really needs to be these days a company-wide effort versus just falling into customer success as a function.
Jim Karrh: Tell me kind of your learnings and your experience there. Well, if you think about, first of all, what even goes into a good, useful gauge of customer health, as we were talking about probably the data. The experience and the insights exist in a lot of different areas around your organization. And so just think through, we're talking about marketing, which may be writing case studies, which might be working the net promoter score angle, doing a lot of other things.
Jim Karrh: They're getting areas of feedback. Certainly your sales team, [00:12:00] uh, is, and they probably should be a little bit more connected to it than they are because the information that we're getting on customer health. I believe best practice is that we close the loop a little bit. We reexamine on a regular basis our ideal customer profile and say, are we really considering the best things?
Jim Karrh: If we're looking for the most valuable customers and the ones who value us the most as well. So always using that as an input. So there's there and we have account teams. We have product teams that are probably looking for features that they can build in maybe to adjacent markets we might have on our financial team.
Jim Karrh: There's probably something about do they pay us on time or here's some elements like that. And then certainly on the customer success team, there's another part of this, Richard, and kinda a related issue, I don't know if you're seeing this a bit, but I'm noticing it with companies, is that increasingly.
Jim Karrh: The customer success teams have financial incentives around retention, and [00:13:00] sometimes increasingly even on account expansion opportunities. We're building the incentives in the accountabilities end. So we're, in order to get a good gauge of customer health, we really need to engage a lot of different teams inside the company and to set them up for success.
Jim Karrh: We basically made more accountability to the customer success team on some of these different areas. Well, so the market's kind of forcing our hand on this, but that also presents a really good opportunity to build more integration and build more alignment around revenue generation and customer retention.
Richard Ellis: I like that a lot. And you know, it's the idea of just kind of mapping out contributions by function to customer health. Just start there, right? Because many companies don't do that. It lives in customer success. They all kind of know intuitively, okay, we play a role and we can certainly influence it, but map it out, right?
Richard Ellis: Where do you connect the dots? Where are those levers you can pull? And that creates then
Jim Karrh: the ability to be more [00:14:00] intentional about it. This can sound like a lot of work, but think about the potential benefit as well. If you're moving, say in the example that was presented from the practitioner in that Harvard Business Review article, and that's just one example, but they move their retention rate four percentage points in relatively short order.
Jim Karrh: Okay, well look at average customer value, average order size, all those sorts of things like that. And then all the other areas of goodness, intentionally use that word, a lot of areas of goodness by getting this right and acting on it. Yeah, it helps sales, it helps on prospecting, it helps the account team.
Jim Karrh: It helps your financial team. You're wasting less time, there's less frustration and there's a lot better alignment of say, what metrics make the most sense and are we bringing in the right information in the right sort of way? Even if it sounds like a lot of work, it's probably not as much work as you might imagine, and we can offer some recommendations for a starting point if you haven't really gotten on this path yet.
Jim Karrh: But the opportunities are substantial, [00:15:00] both on the top line and just how your different units are working together.
Richard Ellis: Yeah, and I would argue that, you know, companies do a reasonable job of putting the right amount of rigor in a sales process so that you can predict how your sales are gonna come in. And, you know, you've got a tight forecasting process with, you know, some level of accuracy, right?
Richard Ellis: The same needs to apply on the retention side of things, right? And if you have a more balanced. Well-rounded framework of customer health like this with those three dimensions of metrics. Then now, rather than just, Hey, are they happy? Do they like us? But it turns into a real predictor of retention or churn if you wanna look at the negative.
Richard Ellis: And again, that can give you, you know, a more accurate picture of the health of your business going forward.
Jim Karrh: And, uh, yeah, the old mantra, it's a lot easier to keep a existing customer than it is to find a new one. And it's also the common frustration that I hear a lot is our customers, they like us and they work with, but they don't know.
Jim Karrh: There's so many other ways we can help them. So many [00:16:00] other ways we can do for them. Okay? Both of those things are probably true. So what do we do about.
Richard Ellis: That's awesome. Well, there's a number of areas we could get into next, and we don't have a ton of time, but I think just in the entrance of getting real practical, every client I know has internal QBR with the sales team and then selectively external QBR with key customers.
Richard Ellis: And just as I look at all the different customers we serve, some do a pretty good job at that. Many just don't have a really good standard process for customer qbr. And so let's talk a little bit about your perspective on, you know, this idea of QBR with your customers.
Jim Karrh: Richard, if I may start, and this may rub some people the wrong way or maybe a little controversial, but I have what we call A-P-O-V-A point of view when it comes to QBR is I think that there are a missed opportunity.
Jim Karrh: And for a lot of companies, and they start with a good intention. But I see what oftentimes happens, and this is a current state, not in everyone, but in a [00:17:00] lot of companies, very good intentions. We want to be able to plan things out. We wanna be forward looking, and not only just kind of how have things gone, but be forward looking and strategic with our customers.
Jim Karrh: And oftentimes it begins pretty well, but over time things tend to degrade and it becomes more like a tactical list. Like if you're. Renovating or moving into a new house, you got the punch list of a few little, you know, I only need a little paint over here and that baseboards outta whack and, but it's not really strategic.
Jim Karrh: Over time, you may see the companies, they aren't showing up for qbr, they don't wanna do them, or it's not high level people and we love everybody at our customers, but you know, there's a difference between a tactical meeting that no one really wants to be at versus something that's much more strategic and valuable.
Jim Karrh: I say, first of all, my point of view is not everyone deserves A QBR. Think about your own internal resources and your own priorities. I say put a red velvet rope around that thing. Okay. And say it's an [00:18:00] invitation. So it's something that we will commit, our best people, our best thinking and our best planning, if you will do the same.
Jim Karrh: We promise to make it worth your while. And so we wanna make it again as strategic and as forward looking as possible. And that's actually how we're gonna be able to dig in that value realization part anyway. Yeah. Is go back a layer or two about what are you really trying to get done, and so not just a feature update on our solution.
Jim Karrh: Sure. We have to do the tactical part. So I think treating QBR as a precious opportunity. Our chances for in-person meetings especially, they're so precious these days, Richard. So I think we, we treat it that way and we use the QBR as a way of planning with our customers and also uncovering and digging, as we were talking about before.
Jim Karrh: What are the most important things that you need to be solving for over the next three months, six months, 12 months? And ways that we can bring some expertise and some innovation. You may have [00:19:00] an innovation center in your company. A lot of people do. That's one of the things we teach here is, uh, bring some of those folks.
Jim Karrh: I mean, let's use it in a way that befits having a really strategic co-creations or a conversation.
Richard Ellis: I like that a lot. Very collaborative, right? And very strategic. And there's just tons of benefits for both your client as well as your company. One of the things that has come up in the past in some of the companies I've served that we were able to kind of address with just simple best practice, and that was.
Richard Ellis: You know, oftentimes your top customers, there might be some service issues right there, some dissatisfaction with the service, the product, et cetera. Some complaints, right? And if you're not careful and you just show up without the right collaboration or pre-planning that in-person day or half day or whatever your QBR is can turn into just an ugly moan session and you're not getting to anything strategic.
Richard Ellis: And so the best practice there is. Lock arms [00:20:00] with your key champions ahead of time. Sort through the issues, get those on the table, understand what they are, know kind of what the answers are, and have a plan to, how are we gonna address this when we, the executives are in the room with us. Let's acknowledge that we do have some service issues.
Richard Ellis: We've got a plan. Both teams are in agreement with that plan so that you can kind of quickly put that to bed and then get on to, okay, let's now, you know, talk about the great value we've delivered. To date and the new value we could create as we continue our partnership going forward and keep it on that strategic level.
Jim Karrh: No one expects your stuff to work perfectly all the time.
Richard Ellis: Yeah.
Jim Karrh: And ideally under that scenario, you've already begun the fix. So if you have some higher level people and they, if they're hearing a little bit of a static and you say, we're in touch with them, we're already working together. If we need to change course, we will.
Jim Karrh: And we'll report back to you, uh, what's going on. So, you know, given that if there's anything else that we're not addressing, let's [00:21:00] do that now. Let's look forward.
Richard Ellis: Yeah, and then just Karrhying that throughout the agenda, making sure it's very collaborative and there's a choreography between who presents what you don't want it always your account lead talking about the value delivered.
Richard Ellis: No, you know, get your client to be prepared to talk about the client they've received and recognized. And so they're, you know, coming to the table with some ownership and some pride. And it's not just all the vendor, again, kind of positioning
Jim Karrh: to the client. Yeah, we're spending our time trying to justify our existence.
Jim Karrh: No, no, no, no. That's right. That's exactly, that's not a best practice. And we have lots of good examples though, and we talked about how QBR can go astray, but we have a lot of good examples of how they can be very, very valuable. Yeah, certainly for account expansion and value creation.
Richard Ellis: I love your reminder that, you know, time is precious.
Richard Ellis: These opportunities aren't for everybody. Right? Let's put a velvet rope around it and treat it well and plan and coordinate well. Time is flying by. We're about out of [00:22:00] time. So we've talked about some goodness in terms of really the evolution of customer health measurement, right? And the three elements that we can use as a framework going forward.
Richard Ellis: Not only customer relationship quality, but also product usage and value realization. And if you do that well and you get the right teams involved, that can really be a predictor and an enabler of real good customer health. Before we wrap up, do you have any just kind of, you know, Hey, watch out for this, or here's a couple other tips that we didn't get to cover.
Jim Karrh: Sure. And this is pretty general, but oftentimes what I'll see, and we talked about objective versus subjective data. And there's a, an important role for both. Can't go on, just one and not the other. But sometimes what I'll see is people will use the more subjective data on things like the relationship quality.
Jim Karrh: Hey, they like us, you know, they, they say good things about us in meetings and things like they show up for our meetings and they'll, they'll use the more objective stuff for [00:23:00] more like the implications of what do we do, go forward, what was our response? I would flip that. I think you're going to have objective data that gives you a lot of indications of how they're using the product and what they're saying about you and willingness to do that.
Jim Karrh: But when you're working with different teams, sales teams, account teams, product teams, let's bring in their gut. Let's bring in their good expertise about what are the implications here? What do we know about them? And so what do we do with this? If we have, if health either it's pretty good, how do we keep it there?
Jim Karrh: If health is a little suspect, what do we do to fix that? So there's a role for both, but I would say. Be as objective as you can in terms of the inputs to gauge customer health and rely on your best people across teams to say, okay, what are the implications for us? And get their expertise into the mix and get started.
Jim Karrh: The company called BigCommerce, that's the one in that article where you've got the customer success leader was contributing to that. I said, you know what? They got started. They put together their customer success team [00:24:00] and some top sales people. And said the first way that they began was to look at those three components.
Jim Karrh: And they said, what do we think would be the relative weighting of those? What inputs do we have? And then let's just plug in a real simple, educated guest model, and how well does that predict? And then just iterate and then brought more teams into the process. So if you're looking for an easy way to get started, you've got a customer success team.
Jim Karrh: If you've got some sales leaders and high performing salespeople, I'd say get them into a room. For a little while and say, this is kind of best practice. That waiting is going to be different for different companies and different industries and different situations. What would be a starting point here?
Jim Karrh: And then let's plug it in and see how it works and how we can continue to get better. Start somewhere. You probably have a lot of good inputs that can get you going.
Richard Ellis: I like that a lot. For any listeners out there that are looking at their current process of measuring health and it's basically just NPS or something very narrow like that, and you wanna move to more of a modern or dynamic or [00:25:00] broader view of customer health, we'll put a link to that HBR article in our.
Richard Ellis: Podcast notes so that you could go register and get access for that. Well, Jim, this has been a great discussion. We could geek out on this for another 20 minutes, but we gotta bring it to a close. And you're a listener and you know, I'm gonna ask you, outside of business, outside of customer health, what's some other little goodness that you've enjoyed lately?
Richard Ellis: Well,
Jim Karrh: this is kind of business, but, uh, it's a book actually that my ri friends had. It prompted me called The Go-Giver by Bob Berg. Uh, okay. It's been around for a while and I finally was shamed, uh, prompted into reading it. I actually met Bob Berg a number of years ago at a National Speakers Association meeting, and I wish I say something pithy like, well, what a taker.
Jim Karrh: No, he actually is a just a. Super generous person and I decided, oh yeah, I really need to read this book. And, uh, short is pithy. It's in a story format. Um, but it's a good thing. Any of you are the high performers [00:26:00] out there or team leaders. It's just a nice perspective. So I appreciate the prompting and I've enjoyed go back and actually reading that book.
Richard Ellis: Yeah, it's one of my favorite books. You can read it in a weekend. It's not the go-getter, right? It's the Go-Giver and a little bit of provocative insight in there, but I like how you can apply the principles and the ideas both in your personal life as well as in business. So glad you got value out of that.
Richard Ellis: Thanks for sharing that, and thanks again for being on our podcast. It's my pleasure. Very much so.
Speaker 3: Some goodness is a creation of revenue innovations. Visit [email protected] and subscribe to our newsletter.
