Leading vs Lagging Indicators: Your Proactive Sales Secret

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Apr 15, 2023 05:31 PM

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Leading v. Lagging Indicators: Your Proactive Sales Secret

When you’re driving down the highway, you don’t make progress by only looking in the rear-view mirror. Without your eyes planted firmly on the road ahead, you’re likely to make the wrong turn, misidentify landmarks as they rush by, or worse—crash your vehicle.

It’s no different in sales.

In this article, we will focus on the difference between leading and lagging indicators so you can understand the future trends and current conditions impacting your business. How can you keep your eyes on the road ahead to make sense of metrics that are currently impacting your revenue? How can you get out of counterproductive reactivity and pivot to a proactive approach? Let’s dive in.

What’s the difference between leading and lagging indicators?

Every business examines key performance indicators (KPIs) to assess the health and growth of their organization. KPIs—like return on investment (ROI), profit margin, and customer retention—help measure whether your business is successfully meeting its objectives.

Some indicators tell you where you’ve been, while others tell you where you’re going. Both metrics are important for understanding how well your business is performing. Sales managers in particular must master the difference so they can support their team with a sound proactive strategy.

After all—it’s the difference between driving while looking over your shoulder and driving with a clear view ahead.

What are leading indicators?

A leading indicator is forward-looking, meaning it provides insight about future events or performance so you can make accurate predictions. Leading indicators are often referred to as “inputs,” telling you what you need to “put in” to your business for it to succeed.

Some examples of leading indicators include:

Lead to opportunity conversion

Lead response time

Meeting No show rate

Time in pipeline stage

Leading indicators are necessary to understand your team’s performance and guide strategy. They can provide you with benchmarks to hit that, if met, will signal favorable outcomes. But they’re not always perfectly accurate, so don’t use them as a Magic 8 Ball.

Another challenge of leading indicators is that they’re fairly industry-specific; often they’re even company-specific. That makes them a bit harder to identify and measure. Take a close look at your current process. What are the metrics you have in place to measure success on a day-to-day basis? Can they help you predict future performance? If so, those are your leading indicators.

A leading indicator encourages business stakeholders to ask:

What processes can I employ to achieve this goal to higher levels of success?

What skills can the team improve to better achieve the desired outcome?

What steps can be taken to speed up the sale cycle?

Leading Indicator Example:

Andi’s team has a major influx of leads in the pipeline for a new persona. Although their other persona’s campaigns have performed well in the last quarter they’re delving into new buyer persona for the first time and their brand recognition is strong.

Andi is weighing leading indicators. With a new campaign providing fresh leads and strong brand recognition, they’re poised for success. But they need to monitor their team’s day-to-day progress, like number of calls made or movement through pipeline stages, to make it happen.

What are lagging indicators?

A lagging indicator looks backward. It helps identify whether a result was achieved or a pattern can be confirmed. Ultimately, it lets you understand the current state of your business. As the logical opposite to a leading indicator or input, a lagging indicator is sometimes referred to as an output, telling you what your business has “put out.”

Some examples of lagging indicators include:

Number of booked meetings

Sale cycle length

Close/Won ratio

Revenue growth

On the plus side, lagging indicators are pretty simple to calculate. You can easily identify these metrics by generating reports and then compare them to others in your industry to see how your business measures up. But just because they’re easier to assess doesn’t mean you should focus on them to the detriment of leading indicators.

The biggest issue with lagging indicators is that by the time you have the data, it’s often too late to make a course correction. Sure, you’ve diagnosed the disease. But you’ve lost the patient. It’s critical for businesses to use lagging indicators in tandem with leading indicators.

Lagging Indicator Example:

Sales manager Antonía is reviewing her team’s numbers from Q3. Revenue growth is flat. Although the number of deals won is steady since Q2, her reps have not been upselling add-ons to their SaaS products.

Antonía is reviewing lagging indicators. Q3 is over so even though she’s flagged an issue with upselling, it’s too late to fix the numbers from last quarter. Instead, she needs to figure out how to use this information to get proactive in Q4.

Lagging indicators are best used in conjunction with leading indicators to determine trends and if outcomes were met. This can be made simple with the right technology infrastructure that compares leading and lagging indicators, offering insight.

How can sales managers be proactive, not reactive?

It’s always better to avoid a loss altogether than stand around after the fact wondering, “How could we have prevented this?” Sales reps on the front line need support from managers and executives that helps them close deals in real time.

Providing data on the number of deals won or the percentage of quota hit last quarter is valuable, but unhelpful in the moment. That’s why sales management must transform their strategy—from reactive to proactive.

A reactive strategy results from focusing too much on lagging indicators; that is, on things that have already happened and can’t be changed. That’s not to say management shouldn’t focus on lagging indicators. It’s important to have a balanced view about current operations and future trends. But lagging indicators can’t be the exclusive focus.

On the other hand, a proactive strategy comes from examining lagging indicators as well as assessing leading indicators. By reviewing and then actively monitoring the sales process, managers and executives can ensure that the same mistakes don’t happen again and can plan effectively for future success.

Transform your sales strategy with Gluework

Understanding the difference between lagging and leading indicators is a great start, but it’s not enough to keep you competitive. Sales managers need to get proactive about their strategy and invest in process monitoring to stay ahead of the curve.

Gluework’s technology helps sales executives get hands-on by looking forward, not backward, with effective process monitoring. Speak with one of our experts today about how we can help transform a sluggish sales strategy to an innovative, forward-looking game plan.