How to Win in the Game of Business: Lead vs Lag Indicators
The principles behind winning in business and winning in sport are similar in many ways.
Take tennis, for example. If you’ve ever watched a match on television, you’ll know that along with all the hitting, running and grunting there are a lot of numbers involved.
And we’re not just talking about the score here. Each player’s performance can be measured in other ways—percentage of first serves in, points won at the net, number of unforced errors on forehand versus backhand, and so on.
But while the statisticians may love all those details, everyone else is just interested in the score, right?
You might not be interested. But the players certainly are.
Admittedly they may not know the percentages down to the decimal place. But they’ll know if they’re making too many mistakes at the net or wasting their first serves. And they’ll change their game accordingly—by staying at the baseline or slowing down their first serves a bit—to fix the problem.
Yes, the score is important. After all, the players obviously want to win. But the only way the players can actually change their winning percentage is to change how they play.
And it’s the same when you’re a business owner. You business may actually have several scores—number of sales, profit made, etc. But while they’re a great way to keep track of how your business is doing, you can’t do much about them once they’re available.
They are—quite literally—history.
They’re what we call “lag indicators” (or sometimes “results KPIs”). And apart from putting them in your reports and sharing them with your stakeholders, there’s not much else you can do with them. They’re done.
What you should be more interested in are the things you can change. These are what we call “lead indicators” (or sometimes “activity KPIs”), and can lead to improved results for your lag indicators (your score).
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.
The beauty of focusing on your lead indicators is that when you improve them, then your lag indicators—the scoreboard—will improve as a natural flow-on effect.
And lead indicators are things you can control this month. This week. Today. With measurement of your performance in these areas you can refine your activities and feel a greater sense of control in ‘improving the scoreboard’.
Lead and lag indicators are both vital measures of how your business is doing. But by looking after the lead indicators you’ll be keeping your eye on the ball when it really matters, rather than looking at the scoreboard of what has already happened.
Ask yourself, what lead indicators are you focusing on 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, we should talk. We can set up lead indicator tracking for you which is the surest way we know to improve your business’ scoreboard.