Lead vs Lag Indicators: Why you won’t win in business while looking at the scoreboard

The financials for the last quarter are on your desk. The net profit isn’t so good, sales have dropped since last quarter and the bulk order of stock you made has significantly reduced the amount of cash available. Definitely not what you anticipated.

So what can you do about it? It is history – nothing you do now is going to change the results for the last quarter.

Your business may have several scores – number of sales, profit made, etc. These are a great way to track how your business is going, but I’ll say it again – you can’t change the results now.

These scores are what we call “lag indicators”. They are measurements of past performance.

What you should be more interested in are the things you can change – things we call “lead indicators”. The only way you can change what comes out in your financials is to change how you play.  You need to change your game to fix the problems.

For example, if you want to increase the number of sales your business makes, you might want to measure things such as:

    • Your website traffic
    • Your website’s conversion of visitors to buyers or email opt-ins
    • The size of your marketing database of contacts
    • Email campaign open rates and click-through rates
    • How many sales telephone calls you make each week
    • How many sales meetings you have each week
    • Your conversion rate of enquiries to quotes/proposals or sales (depending on your business model)

And for profits, you might want to measure:

    • How much it costs you in materials to produce each unit (or service)
    • How much time and labour cost it takes to produce each unit (or service)
    • How many units are being returned by the customer, and so on.

Once you know what your lead indicators are, you can tweak them to see how much they affect your lag indicators.

For example… Improve your site’s SEO to improve website traffic. Increase the number of sales calls you make each month. Give your existing customers an incentive to tell their friends about your business. Look for efficiencies in your production line so you can produce your items more quickly.

When you focus on your lead indicators you don’t have to worry about your lag indicators. They will improve as a natural flow-on effect.

Lead indicators should be based around day-to-day activities you can influence. With measurement of your performance in these areas you can refine your activities and feel a greater sense of control in ‘improving the scoreboard’.

In summary, both lead and lag measures are important. But if you want to change your results, leave the lag measures for your quarterly review meetings and focus on the lead measures on a daily basis.

Now is the time for action.

What lead indicators are you committed to improving this month? How are you looking at that data? Do you have real-time dashboards and weekly or even daily reports on these lead indicators?

If not, you can set up a meeting with us now by calling 03 5339 3200. We can help you identify the lead indicators that would be the most worthwhile to focus on for your business.

Thanks for reading.


The information contained on this website has been provided as general advice only.  The contents have been prepared without taking account of your personal objectives, financial situation or needs.  You should, before you make any decision regarding any information, strategies or products mentioned on this website, consult your own financial advisor to consider whether that is appropriate having regard to your own objectives, financial situation and needs.

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