Customer Health ScorevsNet Revenue Retention (NRR)

A Customer Health Score is a composite metric (typically 0-100) that predicts whether a customer will renew, expand, or churn. It combines product usage data (login frequency, feature adoption), engagement signals (support tickets, NPS responses), and business outcomes (ROI achieved, time-to-value). Gainsight data shows that accounts scoring above 80 renew at 96%, while accounts below 40 churn at 55%. Proactively reaching out to at-risk accounts can save 20-30% of them.

NRR measures the percentage of recurring revenue retained from existing customers over a period, including upgrades, downgrades, and churn. An NRR above 100% means your existing customers are spending MORE over time even without new sales — your revenue grows automatically. NRR = (Starting MRR + Expansion − Contraction − Churn) ÷ Starting MRR × 100. Best-in-class SaaS companies have NRR of 120%+: Snowflake (158%), Datadog (130%), Twilio (127%). NRR is the single most predictive metric for long-term SaaS success — VCs have said it's the first metric they check.

The trap is building a health score based on vanity metrics like 'total logins' instead of value-delivered metrics like 'completed workflows.' A customer logging in daily to export data to a spreadsheet (because your reporting is broken) looks 'healthy' by login frequency but is actively seeking alternatives. Similarly, weighting NPS too heavily ignores that a promoter (NPS 9) with declining usage is more at-risk than a passive (NPS 7) with increasing usage.

The trap is confusing NRR with gross retention. Gross retention ignores expansion — it's just (Starting MRR − Contraction − Churn) ÷ Starting MRR. A company with 90% gross retention and 30% expansion has 120% NRR, which looks great. But if expansion revenues come from price increases (not increased usage), they're masking a retention problem. If you raise prices 20% but lose 10% of customers, NRR looks positive but you've damaged trust. Sustainable NRR comes from customers CHOOSING to spend more, not being forced to.

Build a weighted health score with 3 categories: (1) Product Engagement (40% weight): DAU/MAU ratio, core feature usage, breadth of feature adoption. (2) Relationship Signals (30%): NPS/CSAT trend, support ticket sentiment, executive sponsor engagement. (3) Business Outcomes (30%): ROI achieved vs promised, time-to-value, expansion usage. Score each 0-100, weight and combine. Set alerts: Green (70+), Yellow (40-69), Red (0-39). Review all Red accounts weekly with a playbook for intervention.

Calculate NRR monthly: (Starting MRR + Expansion − Contraction − Churn) ÷ Starting MRR × 100. If NRR < 100%, your business is a leaky bucket — fix churn and build upsell paths before spending on acquisition. If NRR is 100-110%, focus on expansion revenue (usage-based pricing, premium tiers, cross-sells). If NRR > 120%, you have an exceptional business — invest aggressively in acquisition since each customer compounds in value.