Knowing where you’re going is critical, but knowing how to get there is equally important. This is particularly true in business. Often it’s easy defining where you’re going - your objective or primary key performance indicator (KPI) for your business (e.g. increase revenue by 5% month over month). But figuring out how to achieve that objective is challenging and often overlooked. With a surplus of available data, the trick is determining which metrics will influence or lead to our primary KPI.
Sorting metrics: Leading vs Lagging
One of the best ways to simplify the countless available metrics is to group them as either leading indicators or lagging indicators. First, let’s define what we mean by ‘leading’ versus ‘lagging’.
What are leading vs lagging KPIs?
Leading Indicators are like inputs - they measure the activities necessary to achieve your goals. As the name implies, these indicators lead to results, they come first.. Leading indicators can be hard to measure, but they’re easy to directly influence and describe how to achieve your goals.
Lagging Indicators are like outputs - they measure the actual results. Lagging indicators show the final score of your strategy and/or efforts. These metrics are easy to measure, but hard to directly improve. Most likely, your primary KPI - where you’re going - falls into this category.
Working in Tandem
Leading and lagging indicators work in tandem to help you track your progress through to the final results. Think of it like a simple equation where [action] = [results]. Start with the results you want (lagging indicators) and then work backwards to identify the necessary actions (leading indicators) to achieve those results.
- action = results
- leading indicators = lagging indicators
Importance of Leading Indicators
Many times only measuring the results (your lagging indicators) is not a sufficiently clear picture of how your sales machine is performing. Here is where the leading indicators can give you some useful insights. Let’s look at three situations where it becomes critical to track leading KPIs.
1. It takes time to see the results (your lagging indicators). If you won’t be able to see results for 6+ months, you need to make sure you’re on track to meet your lagging metrics. Cue the leading indicators.
Example: you have a lagging KPI of $100k in sales revenue but your sales cycle is 6 months. You’ll want to define one or more leading indicators such as (#) of calls/emails/meetings or the size of your pipeline to ensure you’re on track to close enough deals to achieve your lagging KPI.
2. You need to implement a new process. If you want to change how something is done, you’ll need to track certain benchmarks throughout the process. Leading KPIs serve as those benchmarks.
Example: If you’re implementing a new sales process to reduce your sales cycle length, try measuring how compliant your sales reps are to the new process (e.g. using marketing materials, following the correct script, etc.) or measuring the exceptions to the new process such as number of errors. These metrics will help provide context for the length of time it takes to complete each step - i.e. the time it takes for a marketing qualified lead (MQL) to become a sales qualified lead (SQL), and then from SQL to sales accepted lead, as well as the amount of time it takes to get a proposal out.
3. The result (lagging indicator) is difficult to measure. Occasionally, the lagging indicator will be more complex, requiring more specific (leading) metrics as part of the final result.
Example: If you’ve set innovation as an objective for your team, you’ll first want to define your strategy for innovation. This can vary widely depending on your business. Some optional metrics you might track are (#) of new ideas generated, innovation pipeline, % adoption of new product features, etc.
Making it Practical
In order to make these ideas practical, we’ve put together a list of the most common sales lagging indicators (results) and the most common sales leading indicators you’ll likely want to track.
Common Sales Lagging Indicators
- Total Sales Volume
- Margin Sold or Discount Given
- Growth in Recurring Contracts
- Cross-sale on Current Clients
- Revenue from New Clients
- Average Contracted Length
- Renewal Rate
- Acquisition Costs
- Sales Cycle length
Common Sales Leading Indicators
- Sales Meeting (or Calls)
- Pipeline Weighted Value
- Opportunities Added
- Opportunities Lost
- Evolution of Client Relationship
- Sales Team Open Positions
- Proposals Sent
- Completion of training Program
- Quality of Pipeline or Pipeline Volume vs Goal
- Compliance to your Sales Process
Now that you’ve found the right leading and lagging indicators, it’s time to track them. TV dashboards are a great way to monitor these important sales metrics. Check out these example Sales KPI Dashboards for inspiration.