You’ve probably lost some sleep occasionally over one of the problems that can arise with business and sales. Hang around to view the lagging indicators and you’ve missed an opportunity. Pursue the leading indicators and you might invest in something that fails to materialize in the way you hoped.
What can be done? That’s today’s million dollar question! Especially with market forces changing so rapidly due to inflation, supply chain issues, and customer power.
So in this article we’ll home in on
- lagging indicators and leading indicators definition,
- the significance of the differences between leading ones and lagging ones,
- the importance of keeping a balance between them, and
- how this affects the success of your sales plans and growth.
Keeping both leading and lagging indicators in sight – using the best data you can gather – provides you with a holistic view of sales performance. They help you course-correct as necessary, flexibly, while staying focused on your long-term goals.
Together, they’re a win-win for you. Let’s dive in!
What Are Lagging and Leading Indicators?
Leading and lagging indicators are qualifiers used to measure and evaluate your business’s current state while also predicting future conditions to help you achieve accurate projections over time.
Depending on your goals, however, you need to make use of the right indicators at the right time to be able to achieve your desired results.
It makes sense. Even in everyday life, you often pause to consider what you did in the past and evaluate its success, while also thinking about how you’d like your future to look based on what’s happening right now in your circumstances!
So what’s the difference between the two indicators?
The main purpose of leading indicators is to lead or influence your sales activities so they meet your KPIs – the overall objectives and goals in your business.
Leading indicators are those that show you what’s happening now, such as:
- How many people have replied to your cold email to request more information
- How many Zoom calls were held
- How many meetings with prospects occurred
- Sales leads converted
What you do with this information is the only thing you have control over!
Or you could be checking for prospects who’ve been on your website for more than six months, and then use the number of times they’ve visited as a leading indicator. This is because they’re likely to be more engaged with your brand and therefore more likely to purchase from you. It leads your next action.
Leading indicators therefore help you track and adjust activity related to prospects, calls, and closes in real time to meet targets.
When the results of this activity finally get reported in hindsight, though, they become lagging indicators – i.e. unchangeable history!
Lagging indicators, as indicated above, are used to measure what has already happened. They’re also called following indicators for that reason!
You might, for example, summon up on your CRM dashboard “Total sales for November” or “Number of deals won.”
Lagging indicators encourage business stakeholders to ask themselves quantitative questions like “how many? and “how much?” to find out how things were at one point in time and what occurred before that point was reached.
Although you can’t change this figure, these fixed measures do help you conduct the sales management of your business and determine if you were successful or not.
In addition, this can also be useful knowledge when trying to predict future trends based on past ones. But it’s less reliable at predicting changes in trends than leading indicators are. So – lagging indicators merely measure the goal you intended to achieve using output metrics such as:
- A purchase order
- Renewal rate
- Gross revenue
- Gross margin
- Market share
- Number of deals won/lost, etc.
Combining Lagging and Leading Indicators
Despite their differences and when you might use or act on these indicators, if you combine the information and use it strategically, leading and lagging indicators give you a full picture of your operation and allow you to make changes to improve the sales scenario before it’s too late.
The trick is therefore to avoid the mistake of relying too much on one indicator over the other. That would lead to less accurate KPIs and both
- unbalance your sales reality and
- affect the sales compensation and morale of your team.
It’s therefore best to deploy both performance indicators in tandem to determine your unique sales trends and measure whether outcomes were met.
Besides, if you focus on both indicators, you can create KPIs that push your business into growth mode. Let’s see how.
Why You Should Use Both Leading and Lagging Sales Indicators
1 Improve Focus and Productivity
Identifying your leading and lagging indicators allows you to remain focused on the activities that matter to reach your goals faster.
Once you have a good understanding of business conditions and trends, you’re able to
- identify what leading factors you should prioritize in order to stay ahead and
- not waste your resources on doing the things that will not bring desired results.
Besides, tracking sales team productivity metrics encourages increased interaction among your sales people, improving not only sales performance metrics but also teamwork, sales effectiveness, and sales efficiency.
2 Get Better Leads
Leading indicators specifically focus on
- targeting the right audience –those who meet your ideal customer profiles and
- improving the quality of your leads.
Instead of scurrying around trying to find your ideal customer, leading indicators will guide you to revenue opportunities and likely customers.
And when you then nurture these leads with well-targeted and user-friendly activities, you get more people to move further into your sales funnel.
3 Allow For Cyclical Improvement
Since leading metrics are taken throughout the process early on, it’s a quick and effective method to make sure the sales people are on track to meet goals.
Leading indicators play a big role in your overall sales strategy because they allow you to see how customers are reacting before making any big changes or updates in a particular area (e.g., adding new features).
But monitoring lagging indicators allows you to track the performance of your product or service and see how it performed against the competition.
This gives you an idea of what to expect in terms of sales volume – which in turn can help you forecast future growth and determine if changes need to be made in order to keep up with demand.
You could describe it like a virtuous circle, moving from one to the other to ensure your best business growth.
We Can Help You
Both lagging and leading indicators for sales should play a part in your business strategy!
We have years of experience in helping businesses rev up their sales engine. If you’d like our help in how to use leading and lagging indicators to your best advantage – creating a sales strategy that makes excellent use of both indicators – contact us today! Your top line is our bottom line.