Mastering how to use leading and lagging indicators to grow your company is crucial. In fact, recent exposure to the Vanguard Method reminded me of the importance of both, specifically when you're looking to understand how to truly evaluate your current performance and future potential.
So what are they and how do they differ?
- Leading Indicators look forwards at future outcomes
- Lagging Indicators look back to see if those results were achieved
Most companies use Lagging Indicators, because they’re tangible, easy to find the data and used by boards and investors to evaluate performance.
- Revenue and Margin growth
- New Customers
- Acquisition Costs
- Sales Cycle Length
But they’re like driving whilst you're looking in the rear-view mirror. To determine future outcomes, you should ask yourself what you want to happen, and what to measure to start influencing it. These are your Leading Indicators.
In a sales-environment they might include:
- Calls Made
- Growth in Proposals
- Growth in Opportunities
In SaaS, you might want to reduce churn during free-trial.
So you create a health score tracking:
- Daily Active Users
- Features used
- Training Videos Consumed
Finding your own Leading Indicators is key, as they’re likely to be more specific than Lagging Indicators.
In fast growth agencies and startups, talent very often constrains growth, so review the top of the funnel, for Leading Indicators like:
- Growth in Candidate Attraction
- Growth in Contacts
- Driving Applications
But you should also measure your hiring performance (bottom of the funnel) to find your Lagging Indicators, including:
- Offers Extended
- Offers Accepted
I've only scratched the surface on this topic, so I encourage you to spend more time thinking about what measures you're currently using to track your business performance. Are you looking backwards in the rear-view mirror, or do you have a strong sense of what might happen next? It's amazing how powerful this can be, and how it can change the focus in your business.