In the fast-paced world of Software as a Service (SaaS) marketing, success hinges on the ability to make data-driven decisions. To do this effectively, SaaS marketers often rely on two types of key performance indicators (KPIs): leading and lagging indicators. These indicators serve as compasses guiding marketing strategies, but they do so in different ways and at different points in time.
As part of its learning measurement strategy, RedThread Research examines the differences between lagging and leading indicators.
A lagging indicator is typically “output” oriented and easy to measure but difficult to improve or influence. The number of training hours completed is a lagging indicator. Input-oriented leading indicators are harder to measure, but easier to influence.
For example, a leading indicator could be the percentage of employees who have completed training within a given timeframe.
In this blog, we’ll explore the concept of leading vs. lagging indicators in SaaS marketing, defining each, discussing common examples, explaining how they are calculated, analyzed, and most importantly, how they can be harnessed to drive business growth.
Leading Indicators
Leading indicators are like headlights that illuminate the road ahead. They provide insights into future performance and allow SaaS marketers to take proactive steps to achieve their business goals.
Here are some common examples of leading indicators in SaaS marketing:
Website Traffic: The number of visitors to your website can be a leading indicator. An increase in traffic might signify increased interest in your SaaS solution, indicating potential growth in the customer base.
Email Open Rates: If your email open rates are trending upwards, it’s a positive sign that your audience is engaging with your content. This could translate to higher conversion rates in the near future.
Trial Sign-Ups: The number of users signing up for a free trial of your SaaS product can be a leading indicator of future revenue. An uptick in trial sign-ups suggests a growing pool of potential customers.
Content Engagement: Monitoring metrics like the time spent on blog posts, video views, or social media shares can indicate the effectiveness of your content marketing efforts. Increased engagement often leads to a larger and more loyal audience.
Calculating and Analyzing Leading Indicators
To calculate leading indicators, you need to collect and analyze real-time data. Here’s a simplified breakdown of the process:
- Collect Data: Use web analytics tools, email marketing platforms, and customer relationship management (CRM) systems to gather relevant data on your chosen leading indicators.
- Set Baselines: Establish baseline measurements for each leading indicator. This allows you to track changes over time and identify trends.
- Regular Analysis: Continuously monitor and analyze your leading indicators. Look for patterns, spikes, or declines, and compare them to your baseline measurements.
- Predictive Modeling: Consider using predictive modeling techniques to forecast future performance based on leading indicators. Machine learning algorithms can help identify hidden patterns and correlations.
Using Leading Indicators for Business Growth
Leading indicators are invaluable for steering your SaaS marketing strategy toward success. Here’s how you can leverage them to drive business growth:
- Course Correction: When leading indicators show a decline or an unexpected shift, you can make swift adjustments to your marketing strategies. For example, if website traffic decreases, you should revamp your content or SEO efforts.
- Resource Allocation: Allocate resources (budget, time, and workforce) more efficiently by focusing on strategies that positively impact your leading indicators.
- Goal Setting: Set realistic and data-driven goals based on your leading indicators. This ensures that your objectives are aligned with your expected future performance.
Let’s understand this with a scenario
In a B2B SaaS company, rising website traffic (leading indicator) hints at future growth. They identify a holiday season surge and prepare by creating relevant content, optimizing SEO, and increasing PPC spend. During the season, they engage potential clients, capture leads, and continually adapt based on real-time data, driving business growth.
Lagging Indicators
Lagging indicators are like rearview mirrors in your SaaS marketing journey. They provide a retrospective view of your performance, reflecting past successes or challenges.
While they don’t offer immediate insights for course correction, they are essential for assessing the long-term impact of your strategies.
Here are some common lagging indicators in SaaS marketing:
Customer Churn Rate: The churn rate indicates the percentage of customers who have discontinued using your SaaS product during a specific period. High churn rates indicate issues with customer satisfaction or product performance.
Monthly Recurring Revenue (MRR): MRR measures the predictable and recurring revenue generated from your SaaS subscriptions each month. It reflects the financial stability and growth potential of your SaaS business.
Customer Lifetime Value (CLV): CLV calculates the total revenue a customer is expected to generate during their entire relationship with your SaaS company. It helps in understanding the long-term value of each customer.
Net Promoter Score (NPS): NPS gauges customer satisfaction and loyalty by asking customers how likely they are to recommend your product or service to others. A high NPS often correlates with strong customer retention and growth.
Calculating and Analyzing Lagging Indicators
Lagging indicators require historical data to be calculated and analyzed. Here’s a simplified process:
Data Collection: Collect data on your chosen lagging indicators from various sources, including your CRM, financial systems, and customer surveys.
Calculation: Use specific formulas to calculate lagging indicators, such as churn rate, MRR, CLV, or NPS.
Trend Analysis: Analyze trends and changes in your lagging indicators over time. Look for patterns and correlations with past marketing strategies.
Actionable Insights: While lagging indicators don’t provide immediate course correction opportunities, they offer insights into the long-term impact of your marketing efforts. Use this information to refine your strategies.
Using Lagging Indicators for Business Growth
Lagging indicators are instrumental for assessing the overall health and success of your SaaS marketing efforts. Here’s how they can contribute to business growth:
- Optimizing Customer Retention: High churn rates can be addressed by identifying the reasons behind customer departures and implementing strategies to improve customer retention and satisfaction.
- Pricing Strategies: MRR and CLV data can inform your pricing strategies. You can adjust pricing tiers and plans to maximize revenue and customer lifetime value.
- Customer Feedback: NPS scores provide valuable feedback from customers. Addressing issues highlighted in the NPS surveys can lead to improved customer loyalty and referrals.
- Investor Relations: For SaaS companies seeking investment, strong lagging indicators can bolster your case by demonstrating consistent growth and financial stability.
Let’s understand it with a scenario
For a B2B SaaS company, a high churn rate (lagging indicator) raises concerns about past customer losses. After analysis, they found that issues with customer satisfaction led to churn. They implement strategies to improve satisfaction, which reduces churn over time, resulting in better long-term performance and growth.
Balancing Leading and Lagging Indicators
During a SaaS marketing campaign, leading and lagging indicators should work in harmony. Based on the study, leading indicators are more effective at predicting safety performance than lagging indicators.
Feedback Loop: Use lagging indicators to evaluate the impact of past campaigns, strategies, or product launches. This feedback loop helps refine your approach and improve future leading indicators.
Long-Term Planning: Combine the insights from both types of indicators to create a comprehensive long-term marketing plan. Understand how your leading indicators today will affect your lagging indicators in the future.
Continuous Monitoring: Regularly monitor both types of indicators to ensure that your marketing strategies are aligned with your business goals and growth objectives.
Conclusion
The SaaS marketing world is evolving, so leading and lagging indicators are crucial. While leading indicators give insight into future performance, lagging indicators provide a retrospective view of past performances. The Clueless Company specializes in marketing services for B2B companies that use these metrics.
Using data-driven marketing through leading and lagging indicators, SaaS marketers can make smarter decisions, adapt strategies, and steer their businesses toward success.
To be successful in SaaS marketing, you’ve got to balance proactive insights from leading indicators with reflective analysis from lagging indicators, enabling you to anticipate and adjust to changing market conditions. Ready to lead the way?