What is different between lagging and leading business metrics?
By François Delvaux, Wim Van Winghe
As your company prepares to close the performance for the month of February, what key performance indicators (KPI) and metrics are used to manage the health of the business?
How is your business performing versus your budget? How are you sure the business is executing well the key activities which are predictors of business results?
From our experience, many companies under leverage the power of KPIs and do not measure the relevant metrics especially at the activity level which can be great leading indicators of what will be the business results.
Companies tend to focus too heavily on the use of Lagging metrics or lagging indicators which are essentially linked to the actual business results.
Examples of leading metrics include:
- Total volume sold and performance versus budget or versus same period last year
- Revenues realized and performance versus budget, or versus Last year
- Margins realized for that period and how performed versus budget
- Spend actuals versus budget, or versus last year same period. Analysis of year to date spend versus year to date budget.
- Quarterly results of customer satisfaction or net promoter scores
These lagging metrics are relatively easy to measure, but can’t be changed or managed – generally the results are final and can be observed but not changed.
The value of leading KPIs are in posting actual results.
But a business can have better control of its results by shifting its focus on what we call ‘leading’ indicators. KPIs that can be managed
Many corporations do not use enough leading indicators. Leading KPIs can still be managed and provide a better control of performance.
The leading indicators and KPIs can be used as predictors of your business success. Especially when business metrics are linked to not just business results but when KPIs are set at the level of activities.
Activities can be managed on a daily or weekly basis and these need to support specific business goal (i.e. number of sales visits prepared and realized to support a specific sales goal for a type of customer customer).
Lets imagine to get the 10 Million business growth needed (business result desired), that two sales objectives were defined
- Sell 2 Million in revenues from new customers in segment “A”
- Get 8 Million in revenues from existing customers
Using leading KPIs at the activity level and how connects to support each goal can be very helpful
Sample activities that could be selected and managed with KPIs can include:
- Number of new customers (in segment ‘A’) visited this week by sales, or by month. This supports objective #1
- Number of account plans completed and applied for our existing customers This supports objective #2
- Number of Sales opportunities reviewed this week from new customers. This supports objective #1
- Evolution of social media activities shared to new contacts made from prospects. Level of employee social media engagement on a weekly basis. This supports objective #1
- Number of attendees and new contacts enrolled at planned networking events next quarter. This supports objective #1
- Meetings booked with existing customers and how filled is sales person’s agenda next two weeks towards existing vs new customers
From Minds&More’s experience with our clients, mapping the metrics to relevant activities is a critical success factor. Need to be logically done and map activities to goals. By doing this an organization can have more influence on its goals and if does this will achieve better its desired business results. We help companies to set metrics at the activity level.
As a summary, by managing at the activity level, the outcome can be managed. Ensure that as a business you focus on the activities that will most contribute to supporting your business results. Ensure define and connect activities to specific goals.
To discover more about our program and services to help businesses apply this approach, please review our our pragmatic consulting solutions – Discover how we help businesses in defining and setting activity metrics for the sales teams, marketing teams or for the rest of the business.
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