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Why Customer Retention and Loyalty Are Lagging Indicators and What CX Metrics Can Be Used as Leading Indicators

Often as Customer Success professionals we set our eyes on the north star metrics of customer retention and customer loyalty, however it’s important to note that while these are key benchmarking metrics to track and measure, they are lagging indicators of success.

For any SaaS organization the single most important metric usually is net revenue retention (NRR) which calculates the total revenue (including expansion) minus revenue churn (contract expirations, cancellations, or downgrades). While its true that this metric provides the most accurate assessment of success with your customers, it is an inherently lagging indicator. If a customer cancellation letter is the first time you are being alerted of an at-risk renewal, it is usually way too late at that point to recover and retain the customer.

The same is true for customer loyalty. The most commonly used metric to track customer loyalty is Net Promoter Score® (NPS). NPS is a benchmark that measures how likely your customers are to recommend you to a friend or a colleague. Those customers who score you a 9 or 10 on an NPS survey (i.e., your promoters) are your loyal enthusiasts who are likely to keep renewing and to refer your products and services to others within their network. But as we mentioned before, this is also a lagging indicator of customer loyalty. By the time one of your customers provides you a detractor score (NPS score of 0-6) they are already unhappy and are at risk of churning and have the potential to do damage to your brand through negative word-of-mouth.

With customer retention and loyalty being lagging metrics which ultimately represents the final outcome, we need to also be sure to track the appropriate leading metrics that can help us predict future outcomes and allow time to course correct as appropriate.

Here are some recommendations for leading indicators your Customer Success teams should start tracking today across four assessment areas.

  1. Onboarding Milestones

Customer retention and churn prevention starts at the beginning of a customer’s journey with your company during onboarding. The initial interactions between your customer, your product, and your Customer Success team establish the groundwork to jumpstart success (or accelerate failure).

Here are some factors you should track to ensure your team is setting your customer up for success from the beginning.

  • Journey status – Is your customer on track, behind or stuck? The onboarding journey should be set with specific timelines to track progression and set expectations on both the customer and vendor side.
  • Time spent in a stage– Is a customer spending way too long in a specific stage? If so, you should be alerted to be able to address those roadblocks before it becomes a larger issue.
  • Milestones completed on time – Staying on track and completing tasks and achievements during onboarding is a strong indicator of long-term success for a customer.
  • Customer Effort Score – CES measures the ease or difficulty of a customer experience and indicates the likelihood of adoption and renewal (convenience drives loyalty). You should deploy this survey after onboarding is completed to gauge the experience and tailor your approach as appropriate.
  1. Product Adoption

After you successfully onboard a customer, your job as a Customer Success team is not over. The next stage in the lifecycle is to encourage meaningful customer engagement to drive user adoption. By making sure your customers are getting the most value out of the features and functionality available to them, your organization will benefit from higher retention rates and customer satisfaction.

Here are some factors you can track to make sure you are driving the right customer usage behaviors.

  • Login frequency– This is a simple metric to track to see if your customers are logging in and using your product in their day-to-day work.
  • Sticky feature utilization rate– Are your customers engaging with your most value delivering features within your product?
  • Customer health scores– Health scoring is a process of evaluating a customer’s overall engagement and satisfaction with a company and its product. A health score is a value that indicates the likelihood that a customer will renew their subscription or service with your company and can change overtime (and all the time).
  • Power users– Do your accounts have anyone who is using the product frequently and using your most advanced features who can help be the champion to drive adoption across the team?
  1. Customer Relationship

There are factors that strongly affect customer retention and loyally outside your product and service that fall more into the business relationship aspect of things. These factors might be a bit more difficult to measure, as they are usually subjective in nature, but on the upside, they can usually be easier to influence.

Here are some factors you can track to make sure your business relationship with your customer is heading in the right direction to help support longevity.

  • Customer Fit- Does the customer align with your ideal customer profile (ICP) or are they a poor fit customer?
  • CSM Sentiment- It might also be useful to allow the Customer Success Manager who owns the account to give their input into the relationship based on perceived engagement and satisfaction. You can rank these on a scale of- poor, weak, average, good, or strong.
  • Customer Satisfaction Score- CSAT measures how satisfied a customer is and can be used to measure the quality of service, whether it be with a company, an experience, or an individual. When applied to an individual, CSAT can help evaluate a CSM’s interpersonal skills (empathy, attentiveness, respect, and patience) and technical competency, which both play a role in the customer’s overall experience.
  • Tenure Length- Does the amount of time your customer spends with your organization make them more (or even perhaps less) likely to stay with your organization?
  1. Customer Engagement

Outside of tracking usage of your product, you should also track the engagement your customer has with your businesses across all touchpoints. A more engaged customer is typically more likely to renew and become one of your raving fans vs. a customer who ghosts you for meetings or that does not ever respond to your emails.

Here are some factors you can track to make sure your customers are active and engaged with your company.

  • Frequency of contact- Depending on where you are in the customer journey and how mature your customer is, it could be helpful to know if you haven’t engaged with your customer at all in X number of days.
  • Support ticket volume- Some support tickets can signal that a customer is healthy. But what about high priority tickets that have gone unresolved for a long period of time? Or a large amount of tickets?
  • Training attendance- Is your customer engaging with your educational content and resources? If they are, it is usually a positive indicator that they are interested in learning more and being more proficient in your tool for the long haul.
  • Product feedback- Product feedback is very valuable. Customers want your product to work for them which is why they took the time to consider sending the feedback. But if a customer is submitting feedback every other day, that might signal dissatisfaction with your solution.

Final Thoughts – Focus on the inputs not just the outputs

Lagging indicators represent the ultimate result or outcome with a customer (ex. customer retention or loyalty). Leading indicators can and should be used to help us predict future customer outcomes.

It’s important to have leading metrics associated with each lagging metric to help you plot out your roadmap to get from point A to point B. These leading indicators help tell you which direction you’re trending while there’s still time to change the final outcome.

Customer Success is all about being proactive vs. reactive, so how we track our metrics should only follow suit.

 

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