Leading Indicators tell you the future
… and lagging indicators tell you what just happened.
Leading or lagging KPIs?
As managers, it is our job to have a good view of our business at all times. For this we look at our processes and define some key measures along the flow. The measures that tell us how much or how well we do things are referred to as KPIs, or key process indicators. Often you will see that any process is split into a sequence of process steps. This way, it is easier to isolate and consider each step separately and to study their charateristics.
When we measure things that go into a process step to predict what will come out on the other side, this is known as a leading indicator. Leading indicators are generally more difficult to measure, but they make it possible to influence the future result. Typical leading indicators will be focus around activity and capacities, e.g., number of visits, meetings, and proposals made.
When we measure on the result that comes out of a process, we talk about a lagging indicator. Results are things that already happened. They are easy to measure, but are generally very difficult or impossible to influence. Typical lagging indicators are sales revenue, profitability, and quantity sold.
Most sales organizations focus on the lagging indicators of the business,. i.e., orders received. These are often easier to measure and tend to be available through accounting, ERP, and CRM systems. However, it is important that we also look at the leading indicators of our business to establish that we are undertaking the right amount of activities, of sufficient quality, and in the right direction that will give us the results we need.
Activities drives sales
We should always look for leading Indicators when we want to see how we will be doing. Lagging indicators, such as last month’s sales numbers, tell us what already happened (was sold last month). They say nothing about our coming months. When we are looking for predictability and to plan our work, we need to look elsewhere for guidance.
Many companies analyse the sales pipeline to predict future results. But the sales pipeline is just a static snapshot. It tells us how many opportunities there are right now in every sales step. In other words, what work we have invested to move each opportunity to where it is now. If we do not spend a minute of work on any of the opportunities at all for a month, our sales pipeline would look exactly the same a month later. The deals would just be delayed a month, except we would probably lose some.
If you use pipeline data, look at the change in pipeline rather than the absolute numbers. Examples of forward looking pipeline KPIs you may want to consider are listed below:
- New opportunities in the last 30 days (value and # of opportunities)
- Time opportunities are in same stage (per stage)
- Number of transitions, forward movement between sales steps
These are the direct results of the amount of customer interaction that is done and how well the interaction went, thus indirectly measuring quantity and effectiveness of activity. We recommend that you work with activity data in an active way to complement these more traditional views. For this, it is important that calls, video, and visits are registered. In our opinion, it is preferred that all activity gets at least a quick mention and an entry into the system. Prioritise getting at least some information about all activity, rather than asking your team to write long visit reports, as this almost guarantees that very few will be made.
