Nobody likes customer churn, except perhaps the competitor who just stole your client. But the reality is, there’s always going to be someone out there stalking your customers, so how do you take a proactive approach to preventing customer churn and ensure customer success? First, let’s look at why churn matters.

Customer churn is the number of customers who stop doing business with you during a given time period. Why does this matter? Ultimately, it is more expensive to attract new customers than it is to keep your current customers happy. According to the Forrester, it costs five TIMES MORE to acquire new customers than it does to keep an existing one. However, there is good news as well! Harvard Business School reports that increasing customer retention rates by 5% increases profits by 25% to 95%. What’s a great way to increase customer retention? You guessed it: preventing customer churn.   

We’ll begin by taking a look at how we can better predict customer churn. We like to use leading and lagging indicators.

What are Leading and Lagging Indicators?

Leading Indicators 

Let’s start with leading indicators. Leading indicators are metrics that look toward future events and outcomes. They are an excellent source of insight that can provide a broad understanding of what’s to come. Top leading indicators we use to predict churn are:

  • Customer Satisfaction Rate (CSAT) – how satisfied are your customers with your business? This could relate to products, services, and/or interactions. Low CSAT could predict future churn for customers who are not happy or satisfied. 
  • Net Promoter Score (NPS) – how loyal are your customers? What is the likelihood that they would recommend your business to a friend? If your NPS is low, it is likely customer satisfaction is also low and customer churn could be in your future.
  • Activation Rates: how successful is your onboarding? Have you increased your odds that the customer will be back? Are your customers hitting your onboarding milestones, the event that is your mark of engagement with your business?
  • Usage Rates: how often is the customer using your service? How much is being consumed? If a customer is not using your service, it could be a predictor that they will not stay.
  • New Leads/Pipelines: how many leads are in your pipeline? How many do you expect to close? Does your team have the knowledge to move them through the pipeline and close the deal?

Lagging Indicators

Lagging indicators are metrics that look at past events and outcomes. For example, if your churn data indicates you lost 10% of new customers each quarter of the last year, it’s a good indicator that you will likely lose 10% again the next quarter. 

The top lagging indicators you can use to predict churn are:

  • Churn: how many customers did you lose last quarter? How about the quarter before that? We have asked why quite a few times, you need to ask yourself why here as well. 
  • Profit: are profits up, or down? How do profits look on a quarterly basis? Is there a trend? Why? Does it correlate with customer churn data?
  • Revenue/Growth: Is your sales team closing deals? Did you bring on new business? Are you losing business? Are you adding to your team, or having to let people go? What does it look like for the last quarter, the last year? Is there a trend?
  • Net Promoter Score (NPS) *Dual purpose! This can be both leading and lagging. Is your NPS consistently low? Have you determined what some of the potential causes could be? How does it compare to your customer churn?

How to Use Leading and Lagging Indicators

Now that you’ve taken the time to collect metrics, let’s put them to use! You can use these statistics to get ahead of problems before they start. Start by assessing your leading and lagging indicators. Plot churn data next to leading indicators, such as CSAT, activation and usage rates. Look at the trends to determine if there are relationships between them. Are your customers happy? Is usage low? Are they struggling to engage with the product, or is more training needed? What other reasons could they have for exploring competitors? Low usage could indicate churn in the following quarter, prevent it before it happens by understanding why churn is happening!

Leading and lagging indicators provide important information that can help tell the story of “what” and “why” in helping you prevent churn. They can tell you if you have, or will have a churn problem. Great! Now how do you prevent it? First, you need to get to the bottom of why your customers are churning. Let’s explore some of the most common reasons.

  • Bad customer service/not enough customer support – your communications are key to maintaining your customers! Be available.
  • Lack of brand loyalty/engagement – look at your onboarding process and customer contacts. What are you doing to build relationships with your customers?
  • Not finding success with your product or service – if your customers aren’t hitting their numbers, they may start to look elsewhere.

Benchmarking Metrics

Take your analysis of metrics a step further. Compare key metrics against targeted competitors or internally against other business areas or product/service lines. It is important to continuously look at, and analyze historical data to help develop your benchmarks. There are 3 types of benchmarking you can use:

  1. Internal: analyzing metrics internally against other teams in the company with similar processes
  2. Competitive (external): comparing products, services, processes, and methods against direct competitors
  3. Strategic: look beyond your industry to identify best practices that could help improve your processes

Benchmarking will help build an understanding of where improvements are needed. If customers are being lost, can you determine who is gaining them, and why? Is there an issue with onboarding, training, communication, or the product itself? What needs to change? 

Develop performance metrics that will follow solutions to ensure that the implemented changes are reducing churn. Reducing churn will help increase your Net Revenue Retention (NRR) and promote growth within the business. 

Which leads us to the next logical question, how do I prevent churn?

Top 3 Ways to Prevent Churn

  1. Build relationships. Building trust with customers can be challenging, but is an essential piece of building a true partnership and creating customer loyalty. You need to listen to your customers and understand where they are going. Who are your customers? What are their priorities? How are you empowering your team to champion your customer’s goals? Build a great process and put the customer first; anticipate their needs and plan ahead. Identify the people who need to be involved in decisions. Make the process interactive to keep all stakeholders involved and to facilitate collaboration.
  2. Prioritize clear, consistent communication. Keep customer service proactive by automating where you can to keep in regular contact with customers. Implement a centralized workspace, like the Engage virtual platform, to bring your team and your clients together on everything from communication and documents to reporting and analytics. Create opportunities to help customers improve their processes by understanding what they need.
  3. Customer Engagement. Engaged customers are happy customers. Track how long it has been since the last customer contact. Are customers using available tools and training, and are they providing feedback? Use the data from leading and lagging indicators to help build a recipe for customer engagement. The more you know about your customers, the easier it is to prevent churn. Customer engagement is key to creating the type of customer experience that will build loyalty and keep customers happy.

As you explore the many ways to prevent churn, keep in mind that it all comes back to the customer experience. Find out what keeps your customers content before they can head to your competitors! 

Learn more about preventing churn in today’s ultra-competitive market with Engage today!

About ProteusEngage

Engage: Simplifying Complex Onboarding for SaaS, Tech, and Professional Services. Discover cutting-edge digital workspaces and smart automation that ensure successful customer onboarding experiences. With Engage, unlock a consistent and repeatable onboarding process.

Proteus Insights Team

Post by Proteus Insights Team

With over 25 years in operation, Proteus has built strong connections with industry leaders across various sectors, products, and services. Our experienced team and loyal clients have enabled us to gain valuable insights from these interactions.