Leading vs. Lagging Indicators: Driving Success With Leading Indicators

When it comes to leading and lagging indicators in business, a great way to think about them is through the athlete analogy. 

While every athlete wants to WIN, they can’t change the outcome of a match or competition once it’s over; the result is what it is. Win or lose, all that remains is simply an after-the-event measurement of past performance—a lagging indicator.

The same is true in business. Once those profit and revenue figures come in, it’s too late to change them. They’re lagging indicators too.

However, athletes can control things that increase their odds of winning. For instance, they can manage and track their training schedule, diet, sleep, and various performance metrics during practice—all of which can be fine-tuned ahead of time to help them get better results in upcoming competitions. 

Because these key measures are controllable and help influence and predict future performance; they are leading indicators.

In business, you also have leading indicators like this, but these signals are often overlooked. This article will help you understand the benefits of leading indicators so you can stop chasing results and start focusing on the things that really impact your business.

Leading Indicators Lead to Olympic Golds

A true story highlighting the importance of leading indicators is the transformation of the British Cycling team under the leadership of Sir Dave Brailsford. 

In 2003, he began implementing a strategy called “marginal gains,” which essentially focused on making 1% improvements in every area that could influence how well the team could ride.

Dave and the British Cycling team got to work making marginal improvements to things like tire grip, seat comfort, and aerodynamics. They even went as far as using special hand-washing techniques to reduce the chances of riders catching a cold and testing pillows and mattresses to see which provides the best night’s sleep!

What effect do you think all these small improvements had?

Well, having only won a single Olympic gold medal since 1908, the British Cycling team transformed from mediocre to great and dominated the 2008 Beijing Olympics, winning 60% of the available gold medals. Then, in 2012, they set seven world records and nine Olympic records at the London Olympics. 

The British Cycling team remains one of the best in the world today, proving that focusing on the things that influence future performance (leading indicators) can bring great results.

What Are Leading Indicators in Business?

Leading indicators are the activities within your control that can move the dial and influence future success. They can vary from business to business since what helps one business thrive may not be as effective for other companies.

For instance, for businesses that sell products or services primarily online, website traffic and engagement can be great leading indicators for sales. It might be that, on average, every 100 visits you get to your site generates 1 sale, meaning if you can grow traffic, it will likely grow sales.

Whereas a brick-and-mortar B2B business might find that calling and meeting prospects is what moves their business forward. By tracking this leading indicator, they can see whether they’re on track for the quarter or need to make adjustments to meet their sales goals.

It also depends on your strategic goals. If you’re regularly looking to hire talent, it could be that you track which job description and application processes tend to attract the most qualified and reliable people to your company.

The Benefits of Tracking Leading Indicators

Most companies track their revenues, profits, cash flow, and margin, but these are all lagging indicators since they look to the past to see what has already happened. However, many businesses don’t track leading indicators, meaning those that do can gain a competitive advantage. 

How so? Here’s a peek at some of the benefits leading indicators offer:

• They give you clear and tangible activities to focus on that drive success.
• They allow you to stop chasing results and start focusing on what’s within your control.
• They provide an early warning system, allowing you to course correct.
• They help you gain a better understanding of what really drives business growth.
• They allow you to gain valuable insights into future trends and customer behaviors.
• They allow you to be proactive rather than reactive.

What Leading Indicators Should I Track?

As mentioned, what leading indicators you should track depends on the type of business you have and its strategic goals. 

So ask yourself, what activities matter most for your business? What progress do you want to measure?

Some common examples of leading indicators that businesses track include:

• Website traffic, engagement, and opt-ins.
• Social media traffic and engagement.
• Customer satisfaction and loyalty.
• Advertising spending and marketing content published.
• Prospects called or emailed, proposals sent, or networking events attended.
• Webinars hosted.
• Customer reviews and ratings received on online review platforms.
• Product or service quality.

(See Also: free funnel tracking Google Sheet and video walkthrough!)

How Many Leading Indicators Should I Track?

Now, you don’t have to go as far as Dave Brailsford and the British Cycling team just yet by tracking absolutely everything. Simply tracking a few key leading indicators is a good place to start.

Think about what the top activities within your control are that help your business achieve its goals. You should be able to commit time and resources to these activities and they should be trackable.

You can give each department within your business a leading indicator to focus on. For instance, your content production team may focus on website or social media traffic and engagement, while your product development team focuses on product quality and customer reviews.

What Are the Pitfalls To Watch Out For?

Applying leading indicators isn’t as simple as it may first seem. You need to understand a few key points in order to use them most effectively.

First off, while leading indicators are a great way to influence future success, they don’t guarantee it. It’s not a simple numbers game; improving the score of a leading indicator doesn’t always equal better results.

For instance, you may assess that increasing website traffic usually boosts sales. However, this will only be true if the additional visitors are of the same or better quality than those you had before. Therefore, increasing traffic via some spammy or untargeted method will unlikely get you your desired results.

(See Also: Fast Funnel Fixes for the Most Common (and Unusual) Business Funnels)

It’s also important that you have enough data for it to be reliable as a leading indicator. Making decisions based on too little data can lead to misinterpretation and unproductive results.

Tracking leading indicators is an ongoing and evolving process. The most important thing is to get started as the more experienced and in-tune you are with your leading indicators, the more effective they become!

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