What is the difference between leading and lagging indicators?
While no sales forecasting method sees into the future like a crystal ball, some methods are certainly better than others. Therein lies the difference between lagging and leading indicators: One relies almost exclusively on the past, and the other uses current and future-focused data to make informed projections about what’s to come.
All that’s not to say that both don’t provide valuable insight to sales teams. Analyzing the past can inform certain business practices and illustrate historical trends. Rather, it’s that leading indicators can help sales teams make more accurate predictions about future sales, thereby allowing teams to be more agile and adaptable in their strategy. An estimated 87% of companies have low data-analytics maturity, which means they struggle with poor data quality, inconsistent analysis processes, little to no internal coordination, or a lack of linking data to business outcomes — or some combination of the four. Understanding and using leading indicators can boost data-analytics maturity and give sales teams the kind of competitive edge that only good data and processes can provide.
Leading indicators vs lagging indicators
The key performance indicators (KPIs) that companies measure can generally be split into two main categories: lagging indicators and leading indicators. While one group measures and reports past occurrences, the other looks to the future. However, they both can be used to make better predictions, which is critical to sales forecasting. Let’s examine the two types of indicators.
What are lagging indicators?
Lagging indicators are a group of KPIs that measure quantitative or qualitative historical information. They measure that which has already occurred. These KPIs may include information about sales and revenue streams, long-term customer satisfaction, historical pricing changes, or product releases.
Lagging indicators are, in part, a result of business decisions and operations, such as sales deals or product improvements. As such, they can provide key insights into how a business is being run and whether those decisions were helpful or harmful.
However, because lagging indicators rely on the past, they are blind to current or future changes or trends. Hindsight is not an accurate guidepost for where a company is going. That’s where leading indicators come in.
What are leading indicators?
On the other end of the spectrum, leading indicators are a group of forward-looking KPIs used to make short- or long-term sales predictions. Examples of leading indicators in business include information about current or future sales prospects, future market projections, or customer satisfaction. Essentially, leading indicators provide a glimpse into how a business’s current sales performance will impact future revenue and growth.
At Collective[i], we understand that B2B sales teams are continuously looking for ways to improve sales forecasting and give their sellers better, prescriptive data for strategizing. That’s why our platform is built with leading indicators in mind: to help teams work smarter. This empowers sellers to make tactical, real-time adjustments to their sales strategy to ensure they’re on track — rather than continue to shoot for missed or inaccurate targets.
Leading and lagging indicators examples
With countless lists of KPIs available for businesses to choose from, deciding which leading and/or lagging indicators to track can be a lengthy process. Below is a list of lagging and leading indicators examples. While not exhaustive, it should provide a solid foundation for companies that want to determine how best to measure performance and potential growth.
What is an example of a lagging indicator?
Lagging indicators include the following KPIs:
- Profit margins over the past year, broken down into months or quarters
- Revenue streams and any notable changes
- Expenses over the past year and previous years for comparison
- Customer participation change rates
- Percentage of closed and lost deals over the past three years
- Historical renewal rates for products or services, as well as KPIs showing increases or decreases
What are examples of leading indicators?
Leading indicators could include the following KPIs:
- Opportunity sales pipeline, or the ratio of closed to lost deals
- Number of meetings or presentations scheduled over the next month
- Number of sales in the pipeline, including what stage they’re currently in
- Meeting summaries, including any qualitative information about the potential to close
- Implementation plans and how involved the buyer is in this process
- Amount of time spent prospecting per week
Collective[i] offers the only product on the market that uses leading indicators — such as those listed above — to provide sales teams with daily, customized insights and risk alerts. Learn how to get better data faster with Collective[i].Explore Collective[i]