The terminology of “leading” and “lagging” indicators is most often used in the world of performance management or economic analysis. But what do they mean?
And how can you use leading and lagging indicators to improve sales performance?
First, let’s define what we’re talking about.
A leading indicator is an indicator that changes before an outcome has been achieved. By observing the indicator we can determine if a future outcome is likely to be achieved (i.e. the outcome is forecast based on the indicator).
We know if we improve our performance on leading indicators we are more likely to achieve our goal.
A lagging indicator is an indicator that changes only after an outcome has been achieved. These indicators tell us if an outcome has been achieved (i.e. based on actual results or outcomes).
We will know if we met our goal by reviewing our lagging indicators.
Here is a simple example of one indicator of economic activity: the number of houses constructed. A leading indicator could be the number of housing approvals granted, or the number of mortgages approved (both indicators may be directly connected with subsequent construction of homes). A lagging indicator could be the actual number of houses built, or the value of economic activity in the housing construction sector (both indicators reflect what has happened, based on actual results).
There are many factors that potentially influence sales performance. And most of these factors could be used as a leading or lagging indicator if you can establish a connection between the factor and sales outcome. In the Sales Performance Improvement Framework™ four sources of sales performance factors are suggested: in the Field; in the Office; being Observed; being Recorded.
For a list of potential sales performance indicators download the Sales Performance Improvement Framework.
How to find the best sales indicators
To improve future sales outcomes first you must review past sales performance, or data collected in your CRM, and identify which indicators are important. Which factors, activities or behaviours will influence future sales growth or sales success? Can you reliably measure/monitor those factors in the future?
Think through your sales process, maybe even right back to where first contact is made via marketing activities. Assess the contact points and actions taken from that time. Review top performers against lesser performers on your team and see what they do differently. Look for the underlying causes which could help you to identify leading indicators.
Assess impact of indicators for your sales team
In most businesses there are basic quantifiable indicators which could be used (such as the number of prospecting calls made, or the number of quotes submitted) – but each indicator must be carefully assessed to determine how much impact it really has for your team.
Sometimes you wont have ‘perfect’ information, or you wont know which are the best indicators to use. That’s OK, you need to work with what you have. If you decide you need to use data not previously provided, ask your IT or finance department or CRM provider on the best way to access that data. Maybe they can create a report or spreadsheet for your purpose.
Lead and lag times
Indicators by nature are separated by time from the actual outcome achieved. Depending on the indicator you are looking at the lead-time or lag-time will vary. For example when we think about the likelihood of achieving X value in sales, the “number of sales calls made” could be used as a leading indicator. That is, the more sales calls made the more likely it is to achieve higher sales results.
However the lead-time for this indicator – that is, the time delay between making the sales calls and achieving the X value of sales – will vary depending upon many factors such as what you are selling, the urgency of the decision, broader economic forces, the clients decision-making process etc., and may vary from business to business based on individual circumstances.
Also the usefulness, impact, or relevance, of individual indicators may change over time. So keep an eye on the bigger picture to monitor how well the chosen indicators actually represent the outcomes you are aiming for.
Leading and lagging indicators for sales
Examples of leading indicators for sales include:
- The number of leads contacted
- The number of new sales meetings/discussions held
- The amount of time spent in the field (or conversely, time in the office)
- The use of specific sales practices
- The number of follow ups completed
- The number of opportunities/prospects entered into the CRM/database
- The number of proposals or quotes submitted
- The degree of positive attitude of the sales person
- The amount of knowledge of products/services being sold
- How far the client is through their buying process when first contacted
- The degree of ‘team spirit’ or cooperation by an individual
- The frequency of using time management tools
- The response of the sales person to coaching or guidance
Examples of lagging indicators of sales outcomes include:
- The value or volume of sales achieved
- The conversion rate of quotes to sales
- The percentage of sales quote achieved
- The quality/accuracy of data entered into CRM
- Opportunity value in the sales pipeline (future sales potential)
- Percentage of sales from new versus existing clients
- Profitability of sales
- The mix of products/services sold
Focus on proactive not reactive data
When we look at the field of sales, it is usually easier to focus attention on the lagging indicators such as the value or volume of sales achieved. These results can be seen as ‘hard data’. And this is where a lot of sales reporting is focused, on reporting retrospective results. But it’s too easy to become stuck in the past; always looking over your shoulder at previous results.
Whilst it is essential for company reporting to measure historical sales, that doesn’t help to guide future sales activities or focus effort on achieving better sales outcomes.
Proactive sales leaders know they must identify and focus attention on leading indicators as that will give them, and their team, some control over the outcomes achieved.
Individual versus team indicators
Sales leaders should identify the level of individual performance against key indicators, as well as that for the team. These findings can be used to create goals and improvement plans for individual team members.
Even if everyone is reporting on the same indicator (e.g. the number of sales calls made), one individual may have a higher target than another based on the requirements of their role or their degree of experience or seniority.
Use sales coaching to accelerate team development
Sales leaders may find they need to implement a sales coaching strategy to provide support for their team to review development opportunities and implement the required actions.
It can be easy for team members to measure themselves against the predefined indicators. But changing their own sales behaviours can be difficult, especially if they work remotely or independent from other team members. That’s why it’s important for them to get help through coaching to reflect on their performance and make a plan for improving.
Leading and lagging indicators are a useful management tool. Lagging indicators are often easier to measure, but using leading indicators enables you to more readily influence future results.
When working with sales performance indicators the challenge is to:
- Identify which factors make suitable indicators
- Monitor these indicators in a timely manner
- Give the team access to indicator results
- Align sales team activities with the indicators to increase future success
Sales leaders might find a sales coaching approach to be helpful when working one-to-one with team members. The coaching process will help individuals to focus on their own progress and improvement opportunities.
Sales training for the team could also be considered to develop skills and behaviours required to achieve the chosen performance indicators.
Image credit: Hans Splinter