When should I upgrade or replace my iPhone 12 battery with 78% health?

Well, when that value has gone under 80%, it's time to have a battery replacement, since in such conditions the device can have unpredictable behavior or suddendly stop working.

I suggest that you create a full backup of your iPhone's content as soon as possible, then make an appointment (*) at an Apple Store or AASP (Apple Authorized Service Provider):--> https://locate.apple.com/choose-country-region .

You can also get an estimate for your iPhone model battery replacement using this link:--> Choose Your Country or Region - Apple Support

Regards

Giulio

(*) You can do it:

• Online:--> Genius Bar Reservation and Apple Support Options - Apple;
• Contacting a local Apple Store or AASP among the list provided above;
• Using the "Apple Store" app, available and downloadable from AppStore.

For reference: Prepare your iPhone or iPad for service - Apple Support