The world of Customer Success (CS) is driven by metrics. But not all metrics are created equally. Understanding the differences between leading and lagging indicators can help paint a more accurate picture of your CS efforts.
What are Lagging Indicators?
Lagging indicators look backward and show what you’ve already achieved. Lagging indicators often fall into the financial category, including net revenue retention, churn, and renewal, and track whether you and your customers hit their financial goals.
When part of a strategic plan, these business metrics can help predict long-term success, whether the company’s initiatives impact customer success, and whether customers are willing to pay for the products and services. If lagging revenue or renewal rate is increasing, it’s a sign that your product, market fit, and strategy are aligned. However, if those lagging financial indicators are dropping, it could mean your CS strategy needs an update.
The benefit of lagging indicators is that they can be strong measures of performance over time. Lagging indicators are also relatively easy to measure because there is a direct correlation to the predicted outcome. For example, things are going well if revenue is increasing and churn is decreasing. Tying these metrics to the activities during the measured life cycle and changes that impacted success can tell you if you are on the right track with your customers.
Lagging indicators can also be powerful catalysts for future changes and improvements when tied to strong points of measurement in the customer lifecycle. Examining lagging financial indicators like total dollars churned can help CS teams identify patterns in when and why customers are leaving, which they can use to prevent the same things from happening to other customers.
However, the biggest drawback of lagging indicators and the reason they often get a bad rap is that they focus on the past. By the time you see a lagging indicator change, such as a drop in quarterly revenue or an increase in customer churn, it’s likely too late to do anything to solve the problem.
What are Leading Indicators?
Conversely, leading indicators predict where things are moving in the future. Leading indicators like NPS, customer engagement metrics like adoption, usage, onboarding success, and time to total value help Customer Success Managers (CSMs) keep their fingers on the pulse of what’s happening with customers.
Because leading indicators are current, they can raise warning signals that help CSMs act before issues become larger problems. Leading indicators give insights into at-risk accounts so CS teams can see in real time who is struggling. Those valuable insights can help create a detailed roadmap to get that customer back on track before it’s too late. Leading indicators can also help nudge customers to renew or expand their contracts.
On a positive note, these leading indicators can also show what an ideal customer looks like and help identify the ideal customer journey. Leading indicators help identify the levers to pull to increase customer satisfaction and predict long-term success for your customers.
Match Your Metrics With Customer-Focused Objectives
When choosing which metrics to measure, companies need to focus on two key objectives:
1. Delivering business value to customers
2. Delivering a positive customer experience
These objectives encapsulate the entire purpose of the CS team. Both of those objectives must be met for CS efforts to be impactful and for the company to grow. CS efforts are successful when customers see the value of using the product, experience an ROI from that product, and have a great experience while doing so.
Customers purchase software for a variety of reasons, but those reasons always center around a problem that needs to be solved. No matter if these problems are external or internal, the expectation is the same: the expectation is the same: the value of the software should ease or solve the pain identified in the sales cycle. Using the product should have a direct positive impact on the business, the problem, and the customer experience.
In an Ideal World, Lagging and Leading Indicators Work Together
Lagging and leading indicators are both crucial to measuring a company’s success and the value of its CS efforts. You can’t create a path for future growth if you don’t know where you’ve been, just like it’s difficult to move forward without knowing where you’re going.
Leading and lagging indicators both have a role to play in the world of CS. Leading indicators provide a clear picture of if you’re hitting the two objectives of providing business value and a great experience to customers. Lagging indicators help you triangulate problem areas to correct. In other words, leading indicators measure progress towards a goal, and lagging indicators measure if that goal was achieved. The key is to balance them to paint the complete picture instead of relying too heavily on one or the other.
When it comes to lagging versus leading indicators, one doesn’t have to win over the other. Both types of metrics are essential to providing a CS experience that provides value and growth.