Too Simplified? Is it time to Retire ??Red, ??Yellow, ??Green Status Updates?

The red, yellow, green (RYG) status update framework is a widely used tool for tracking customer account health, giving a quick, visual representation of an account's status. Green typically means everything is on track, yellow signals caution or early warning signs, and red indicates significant risk or immediate attention required. While this traffic-light approach is intuitive and easy to understand, it is increasingly being challenged as too simplistic for the complexities of today’s customer success and account management strategies.

In this article, we’ll explore the current state of the RYG framework, its limitations, and how a more nuanced approach can improve forecasting, customer relationship management, and contract renewals.

The Appeal of Red, Yellow, Green Status Updates

RYG status updates offer several advantages. Benefits include:

1. Easy to understand: Without needing much context, anyone in an organization can see that a "red" account needs immediate action, while "green" accounts are on track. This clarity helps executives, customer success teams, and even salespeople prioritize their focus quickly.
2. Visually appealing: The color-coded approach is eye-catching and simple. It's easy to create dashboards or reports that allow leaders to make rapid assessments and understand portfolio health at a glance.
3. Efficient for status meetings: In customer success meetings or account reviews, RYG statuses make it easy to summarize account conditions in a few words. It simplifies internal communication, allowing for focused discussions on next steps.

The Problem: Oversimplification

While the RYG framework provides a snapshot of account health, it often fails to capture the full complexity of customer relationships. The reality of Customer Success, especially when tied to contract renewals or revenue forecasting, is much more nuanced.

Here are several reasons why the RYG approach can fall short:

1. Lack of Granularity

RYG only offers three states: good, moderate, and bad. But customer relationships aren’t binary, and many accounts fall into a gray area that’s not easily captured by these limited choices. For example, an account in a "yellow" state might range from just mildly concerned to nearing contract termination. RYG doesn’t provide the granularity necessary to distinguish between these variations, which can lead to inappropriate responses.

Furthermore, there are multiple facets to account health: usage metrics, customer sentiment, product adoption, relationship quality, competitive threats, and more. Each of these dimensions may paint a different picture, and reducing them all to a single color may overlook critical information.

2. Subjectivity in Status Assignment

One of the biggest risks with the RYG model is when subjectivity involved. What constitutes a "yellow" versus a "green" status can vary depending on who is assigning the label. For example, a Customer Success Manager may be more cautious and mark an account as "yellow" for relatively minor issues, while another may not signal a problem until it is too late, and the account is "red." Likewise, within new logo acquisition, for "green" accounts likely to close, sellers are incentivized to keep an account "yellow" to ensure full resources continue to flow to the opportunity.

This subjectivity can lead to inconsistencies in how accounts are evaluated across the company, causing confusion during meetings or forecast planning.

3. False Sense of Security

A "green" account status often implies everything is fine. However, Customer Success leaders know that even seemingly healthy accounts can churn unexpectedly if deeper warning signs are ignored. For example, a "green" account might have high product usage and no immediate problems but could be unhappy with the level of innovation or support, leading to a surprise non-renewal.

The simplicity of the RYG model can create a false sense of security. Teams might overlook smaller, less obvious signs of trouble because they rely too much on a "green" status to mean everything is going well.

4. Inadequate for Predictive Forecasting

In today’s customer success environment, predictive analytics play a crucial role in renewal forecasting. The RYG model is largely reactive, tracking the current state of an account, but doing little to predict future risk. This limitation is particularly dangerous when trying to forecast renewals or upsell opportunities.

Predictive models that incorporate multiple data points—such as product usage, customer engagement, NPS scores, competitive activity, and the customer's evolving needs—are much better suited for renewal forecasting than a simple color-coded system.

What the Atlanta Customer Success Community is Saying

Over the last few months members of the Atlanta Customer Success Network network have been discussing how their organizations approach health scores. This includes both approaches (and data sources) to measure health and renewal probability, in addition to how positive changes in health are being actioned to respective growth programs, and risk mitigation programs.

One theme that keeps emerging is whether the Red, Yellow, Green framework is the right approach to measuring health. Across industries and seniority levels when customer health is limited to Red / Yellow / Green there is consensus that there is too much yellow, and yellow taxonomies often struggle to provide context if they are "yellow, but positively trending towards green" or "yellow and negatively trending towards red."

When Customer Health is limited to Red, Yellow, Green too often...

  ?? ?? ?? "Reds" are downplayed to "Yellow" 

  ?? ?? ?? "Greens" are sandbagged to "Yellow"
        

Is the ??Solution, "Yeah, but... Maybe?"

One alternative being explored is shifting for the RYG 3-taxonomy approach to a 4-taxonomy approach. For many, this likely solves for ambiguity in yellow status, and can further help leadership understand opportunity and risk when allocating resources across accounts.

Alternative approach to Red, Yellow, Green (Account Renewal Probability example)...

  1. Absolutely 
  2. Yeah, but ... (aka 'we need to stay aware of')
  3. Maybe 
  4. No Way
        

While the above taxonomy has room for naming improvement, the context and the intent are the most important difference. For example,

"Absolutely" means they have budget and are happy. It is essentially the equivalent of Green. From an Account Renewal Probability standpoint this should be interpreted as core ARR/MRR renewal revenue is safe. But from a BANT standpoint, regardless of account strength this doesn't imply that this happy account has budgetary capability for further revenue (that should be captured in a different field).

"Yeah but..." means this account is 'yellow and trending towards green.' This is still a 'yes,' but there are things we need to stay aware of. From an Account Renewal Probability standpoint the account team is currently on the offensive. From a resourcing and cross-functional support standpoint this account is a smart investment. This account may never become green, and your CRO will sleep easier at night with a "Yeah, but ..." instead of the uncertainty a "Maybe."

"Maybe" means this account is 'yellow and trending towards red.' Additional context is needed to understand what can be controlled to influence and improve renewal probability, versus what is out of control. Things such as usage and benefits gained likely can be improved with resourcing and cross-functional support being championed. The account team is on defensive, and transparent conversations are essential. To get and maintain a "maybe" you're likely allocating more resources than you'd prefer.

"No Way" means this account is red. As tempting as it is to play the hero, you're likely applying large resources for minimal or no gains. Context is extremely important here, and if there's a case (and a path) to change a "No Way" classification now is the time. Maybe it was sold as a wrong fit. Maybe something changed outside of your control within the client's business, staffing levels, budget or industry. You need to service this account and fulfill existing contract requirements, and you need to be honest and understand when this account's revenue is likely to stop.

Conclusion

The red, yellow, green status framework may have its uses, and is decreasingly sufficient in today’s complex Customer Success environment. As businesses rely more heavily on data-driven insights for renewal forecasting and account health management, the binary limitations of RYG become more apparent. In an upcoming article, this topic will be explored further, including the psychology of red, yellow, green and how we can apply lessons from both TSA's Homeland Security Advisory System and also the the types of lifeguard advisory flag colors (and flag combinations) we are likely to encounter when spending a day on the beach.

FEEDBACK. Reader Question ??

?? If Bill Lumbergh could fast-forward from Y2K to 2024, what would he say to Peter Gibbons about the state of Peter's TPS Dashboard??Red, ??Yellow, ??Green entries?

After a tragic fire that consumed their company headquarters, the company acted on the advice of "the Bobs" and went 100% WFH remote. The TPS Dashboard is top of mind, and Bill has a meeting this afternoon with the Bobs. How does Bill understand the context behind Peter's Red, Yellow, Green entries? Will Bill send Peter a Memo, or just ping him all day long on Slack?

Bonus: Is "2024 Bill Lumbergh" an Android or iPhone user?