Leading and Lagging Indicators
Leading and Lagging Indicators
What are leading and lagging indicators?
- Lagging indicators are the report card; leading indicators are the control stick
- Predictive power and influenceability define a leading indicator
- Validate leading indicators by pairing them with lagging indicators
Open a KPI list and most entries are numbers that measure results: revenue, operating profit, turnover rate, customer satisfaction. These lagging indicators are accurate but late. By the time you learn quarterly revenue is short, you can't undo that quarter. Leading indicators are numbers that move before the result shows up. This month's count of new meetings predicts deals won three months from now. A lagging indicator is a report card; a leading indicator is the control stick, and an organization with only report cards can do nothing but wait for results.
A good leading indicator meets two conditions. One is predictive power: when this number moves, the result must actually follow. The other is influenceability: it must be a number the owner can raise on their own this week. To find one, work backward from the result. Deals come from proposals, proposals from meetings, and meetings from outreach. Measure the count, conversion rate, and time taken at each step of this chain, and you can see which link best predicts the result.
A workable mix is one lagging indicator paired with one or two leading indicators. Keep in mind that leading and lagging are not absolute categories. Training completion rate is leading for on-the-job application rate, but lagging for training operations activity. Which outcome you measure against determines where the same number sits. In HR, for example, you might set one-on-one meeting rate or a 3-month onboarding survey of new hires as leading indicators ahead of the lagging indicator, turnover rate.
Where things go wrong in practice is the moment a leading indicator becomes the goal. Put visit counts into the evaluation and visits rise, but so do visits unrelated to winning deals. Always view a leading indicator alongside its paired lagging indicator, and if the two stop moving together, drop the hypothesis. Another pitfall is a leading indicator chosen without validation. The assumption that 'more training hours lift performance' sounds plausible, but if the data has not confirmed it, you are only counting easy-to-measure activity. Revisit the relationship between leading and lagging indicators at least once every six months.
John KimCEO of Nanum Consulting and author of B2B Marketing Design
Sungil KimGlobal pitching expert from KAIST and Samsung Electronics who coached the winning teams at the UN Tourism and Select USA IR pitch competitions| Category | Leading indicators | Lagging indicator |
|---|---|---|
| What it shows | Activities and conditions that drive results | A result that has already happened |
| Timing | Moves ahead of the result | Confirmed after the period ends |
| Strengths | Lets you act in advance | Accurate, with little disagreement |
| Weaknesses | Its link to the result must be validated | Too late to change by the time you know |
| Sales example | New meeting count, demo conversion rate | Deal value, revenue |
| HR example | One-on-one meeting rate, adjustment score | Turnover rate, productivity per employee |
The distinction comes from economic analysis, which separated indicators that signal the business cycle in advance from those that follow it, and it carried over into management metrics. In performance management, it became widely used after Kaplan and Norton’s Balanced Scorecard argued that financial measures showing results should be paired with operational measures that drive future performance.
Consider a hypothetical case. Company A sells enterprise software and has 200 employees, including 45 salespeople. All 8 KPIs of the sales division were outcome numbers such as revenue, orders, and profit, and it learned that Q3 revenue was 22% short of target only ten days before quarter close.
- The sales planning team leader traced back through 180 deals won over the past 2 years. 78% of them came from deals that reached a demo within 30 days of the first meeting, and it took an average of 95 days to reach a contract.
- The division head set two leading indicators ahead of the lagging indicator, quarterly order value: weekly new meetings and the demo conversion rate within 30 days. The team agreed to review these two numbers first at every Monday meeting.
- Two months later, weekly meetings rose from 38 to 61, but demo conversion fell from 42% to 29%. One team leader admitted, "To hit the count, we visited every account, even the hopeless ones."
- The division head removed meeting count from the evaluation and kept only demo conversion rate. Meeting count became a number to watch, and a target criterion was added: companies with 300+ employees.
- The HR head applied the same approach. For sales turnover, they set two leading indicators: the monthly one-on-one meeting rate and the 3-month onboarding adjustment score. The meeting rate had been 35% up to that point.
- A year later, the demo conversion rate rose from 42% to 51%. The team now spotted a quarterly deal shortfall 6 weeks before the quarter began instead of 10 days before it ended, and sales turnover fell from 19% to 12%.