How to use leading and lagging KPIs to steer your business

I keep on coming back to the topic of KPIs. I’ve written earlier about typical mistakes and how to prevent them, mostly in relation with commercial teams. What I’ve found is that it’s really important to differentiate between leading and lagging KPIs. It’s vital to know the difference and use them properly

Lagging KPIs: undeniable facts

When we normally think about KPIs, most of the time we’re look at lagging KPIs. A lagging KPI is called that way because it lags to the actual thing it tries to describe. That sounds simple but cryptic. A lagging KPI, typically at the end of something describes what has happend before. It could be the revenue numbers from last month, the leads generated by Marketing from last week or the number of unsubscribes from the email blast. The beauty of lagging KPI’s it describes the full truth, the full impact (or the lack thereof) completely. It informs you about what has happened so you can learn, analyse and understand. It doesn’t allow you to change anything it can only tell you what to do better next time. With the emphasis of next time. So it’s the full story, but after the fact.

Leading KPIs: a glimpse into the future

Where lagging KPIs can clearly state what has happened looking backwards, leading KPIs can show you where you are headed… but like any fortune teller, leading KPIs give you an idea, a hint, a suggestion that needs interpretation.

Leading KPIs work really well in a process. Once you’ve mapped the process, optimised it and truly understand it, you’ll be able to select some KPIs during the process, that will describe a future outcome. As one thing leads to another in a way or form, the quality of the one, will inform the quality of the other. If you are generating too little leads, it will be unlikely you’ll hit your funnel targets. If you’re funnel is solid (size, shape) you can be fairly confident about next quarter’s wins. As there is a predictive value in leading KPIs, it allows you to steer. If you have proper daily management and problem solving skills, you can change the outcomes by counter measuring any gaps upstream in the process before it’s too late. This could be the difference between making and missing the quarter.

But in many processes, one thing leads to another, but the one and the other are not the same. The one is being treated, converted, qualified or whatever. That means there are more things that contribute to the outcome than just the one thing. It could be conversion rates, economic headwinds or rising prices. So make sure when studying leading KPIs there are other influences, some you control and some you don’t. If you’re funnel is good you can still miss your margin target if you need more discount to keep your win rate up. Leading KPIs describe and predict a part of the truth, not the whole truth. Lean Business leaders understand that.