Leading vs Lagging Indicators
As performance based marketers our role is to bring clarity to the situation, then advise, plan and execute to shift the needle on the business.
Marketing and Sales Leaders are familiar with KPIs (Key Performance Indicators) but not every leader understands how to design KPIs to drive performance, not just report on what happened.
Breaking your KPIs down into to Leading and Lagging Indicators is generally the first step. This article is a quick introduction to these two terms and gives you some actions to get started on so you can start building better data measures.
Lagging indicators are the most common KPIs used, often because they are the easiest to measure.
These are KPIs which have happened in the past, they are measures of outcomes. For example, Sales Volume, Total Sales Value, Average Deal Size. These measures are all indicators of work output in the past.
Lagging Indicators are useful but they are not the whole story. Nor do they tell us what might happen in the future.
Leading Indicators are measures on activities which help drive a performance outcome. This is in contrast to looking at a KPI which tells us the past performance outcome. Great Marketing and Sales teams who are focussed on driving a business forward will create a balanced view using both types of metrics.
An example of a leading indicator might be brand perception belief. A fall in brand perception belief is likely to indicate a fall in future sales, conversely a rise in brand perception belief is likely to result in stronger future sales.
Another example of a leading indicator might be response time to online enquiry. Harvard research in 2011 identified that responding to an online enquiry within the first hour lead to a 7 times likelihood of qualifying that prospect more effectively.
Therefore, focus on the leading indicator of customer response time and you will begin shifting the needle on qualified prospects and therefore total sales.
Emphasise Leading KPIs For a More Positive Atmosphere
Emphasising leading indicators actually encourages performance above expectations. The marketing and sales team who are focussed on just hitting lagging indicator KPIs such as Total Sales or Total Revenue will generally be focused on hitting the desired lagging indicator.
However, the marketing and sales team who are focused on hitting leading indicator KPIs such as calls, response time, content engagement, customer engagement are more likely to outperform on lagging indicators such as total sales because they’re focussed on metrics which improve customer experience.
These teams literally make their own luck - more opportunity from more qualified prospects which is easier to close.
Getting the Right KPI Mix
Just focussing on Lagging Indicators creates a short term mindset with little ability to plan for the future. Conversely, just focussing on Leading Indicators may not ensure today’s short term performance goals are met.
Getting the right mix in your KPIs is actually quite hard. Lagging Indicators are generally easy to set up but your leading indicators can be quite hard because they tend to be specific to your industry and brand.
That’s why you should be approaching your marketing & sales performance in an agile manner with a view of continuous improvement, adding and testing new scenarios on a regular basis.
Some Possible Actions
How well are you managing your performance data across the sales and marketing team?
Here are a few actions to get you started:
- Build a list of KPIs and divide into two lists, Leading and Lagging
- Workshop as a marketing and sales team what you currently think are the leading indicators of future performance.
- Start introducing measures to test the leading hypothesis. Demonstrate that improvement in a leading indicator will actually shift the needle on business performance.
- Take control of your marketing and sales data destiny. Own the marketing and sales data platforms and the ability to massage your CRM and your MarTech system. The worst thing you can do is outsource your KPIs and dashboard management to an IT department who will only update on a quarterly cycle - live in your data daily so that you can execute quick actions and respond accordingly.
- Work out what your best leading indicators are and start embedding these behaviours and measures within your team culture.
- Balance your performance reporting with leading and lagging indicators to give the C-Suite the wisdom for future investment.
Need To Know More?
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We help our clients lift the customer experience across the customer journey using leading and lagging indicators through CRM, Automation Platforms, Behavioural Platforms and Content & Media Engagement Data, say hello here.