Insights

Focusing Solely on Lagging Indicators Won’t Accelerate Growth

“The most serious mistakes are not being made as a result of wrong answers. The truly dangerous thing is asking the wrong question.” Peter Drucker

As a CEO/Owner/Portfolio Manager, one of the topics that keep you up at night is – “How do I accelerate growth?”. Your search for answers starts with the sales team and their progress. At your quarterly meeting, the Sales VP comes in with the ubiquitous PowerPoint presentation and reviews the results. The conversation revolves around units sold; deals won/lost, conversion rate and revenue. The question that inevitably comes up – “What does next quarter look like?”. Answers like “It looks good” or “We’ve got some big things pending” are often the response you hear. So, what does that mean? Are sales going to increase or decrease in the future? How can you look at the data and really determine what future sales will really be?

Lagging vs. Leading Indicators

Let’s define each indicator to determine how we can use the information they provide, to improve upon growth.

Lagging Indicators are the results of efforts made in the past i.e. revenue, units sold and market share. These indicators represent where the company has been and what it has accomplished from a historical point of view (YOY or MOM). If your company has a long sales cycle, these indicators might represent work that is 12+ months old. Too often, companies rely on lagging indicators to predict trends for the future.
Leading indicators are the activities or inputs that drive your business. These metrics may include leads created in a specific timeframe; leads that turn into qualified prospects; opportunities at each phase in the sales cycle; the size of the pipeline; and other activity based inputs. Leading indicators give you a picture of things to come and the current output of your sales team. Leading indicators should be identified in your sales cycle and measured against past performance.

Leading indicators are the activities or inputs that drive your business. These metrics may include leads created in a specific timeframe; leads that turn into qualified prospects; opportunities at each phase in the sales cycle; the size of the pipeline; and other activity based inputs. Leading indicators give you a picture of things to come and the current output of your sales team. Leading indicators should be identified in your sales cycle and measured against past performance.

Using both lagging and leading indicators together gives you more visibility today, into your sales for tomorrow; as well as, the ability to pinpoint issues.

Leading indicators will provide insight as to the top of the sales funnel and whether changes need to be made today to drive sales tomorrow. The focus here should be around activity necessary to drive the needed leads and to move forward through each phase of your sales cycle. By understanding each key leading indicator, you can identify issues earlier in the process, then proactively make the needed corrective measures.

Lagging indicators will allow you to verify expected results that were forecasted along the way. Checking results against expectations is critical when verifying the sales forecast and identifying potential issues. These indicators will confirm results to changes that you’ve made in the early phases of the sales cycle. Ultimately, the results will provide much-needed information that can drive the direction of your sales team in the future.

Next Steps

How does your metrics look? Are you tracking a good blend of leading and lagging indicators? Tracking and taking action against the right set of indicators will help you accelerate the growth of your company.
Want to discuss your indicators and business? Have a comment or question? Please reach out to me at 610-310-6707 or bmorrow@thinkempirical.com