All customer success teams will be measuring their performance in some way even if it is only, at the very highest level, retention or churn. More likely though, the team will be considering a series of metrics or key performance indicators (KPI’s) and it can be sometimes difficult to make sense of them all. To understand the bigger picture , it is important to understand the concept of leading and lagging indicators.
Rear View Mirror
Lagging indicators look backwards, they tell you what has happened. If you are trying to get into shape, your weight is a lagging indicator. Many things have happened before you gain or lose weight and the dial in pounds or kilograms only tells you the outcome. You might have been to the gym more often, run further, or changed your diet but weigh scales don’t inform what has made the difference. Revenue is also a lagging indicator. An increase could be grounded in winning more customers, increased prices, less discounting, cross-selling, upselling, or any combination of those things and many others.
So lagging indicators tell us what has happened but not why. An increase in revenues or a reduction in waistline can be attributed to a number of activities and some of those activities are measurable themselves. This is where we find leading indicators. Tracking the number of runs each month or, indeed, sales volumes and new customers tells us what is contributing to goals and what is not. Leading indicators also predict lagging though cause and effect can be complicated so doing so is not always straightforward. For example, customer satisfaction is a leading indicator of revenue but a business could not forecast revenues on that one metric alone.
As will be obvious by now, a customer success teams should be measuring a mix of leading and lagging indicators. Lagging indicators, often financial such as annual recurring revenue (ARR) are unambiguous and straightforward. Leading indicators such as Customer Satisfaction, usage levels, or support resolution times are an indication of what is happening that might, in time, be reflected in renewals and ARR.
The Cause and Effect of Renewal
In simple terms the most lagging indicator in a customer success team is the renewal. A renewal is dependent upon the quality of interactions with customer success, support and other customer facing teams in a SaaS business. It is also dependent upon the levels of adoption, expanded use of the solution, and the quality of the customer relationship. And finally, the most lagging indicator is the customer outcome or the reason the customer uses the SaaS solution in the first place.
That they are achieving those outcomes is the most leading indicator of all and, in many cases, the most difficult to quantify objectively.
Lets Wrap This Up
So leading and lagging indicators are both required in measuring the performance of a customer success team. Lagging indicators such as renewal, and churn are an indication of what has been achieved, often financial, and mostly quantitative and objective. Leading indicators such as adoption levels, or customer satisfaction can be more subjective and/or qualitative but provide insights into what is driving performance. Tracking the right mix of leading and lagging indicators is the key to not just understanding your performance as a customer success team but what need to be done to improve it.