What Are Leading and Lagging Indicators, and What Can They Do for You?

Today’s post is by Nikolaus Kimla, CEO of Pipeliner Sales, Inc., as well as the author of some 50 books on sales management and sales methodology. Find him on LinkedIn, or email him directly at [email protected]. You can also join him at the Sales 2.0 Leadership Conference in Philadelphia on November 16. 

 

Sales management is often conducted using lagging indicators – KPIs (Key Performance Indicators) that show what has already happened, such as:

• Sales
• Number of units sold
• Gross margin
• Number of different products sold

We definitely need these in order to see where we’ve been and how we’ve done. But managing only with lagging indicators means you, too, are going to be lagging. Why? By the time lagging indicators become clear, it is too late to change anything.

To look into the future, we need to be able to tell how our current activities are impacting those final figures.

Leading Indicators

Now let’s take a look at the other kind of KPI, called leading indicators. Leading indicators serve as a somewhat reliable index of how our lagging indicators are going to turn out, and consist of factors that can be monitored on a day-to-day basis, such as:

• Leads created
• Leads converted to opportunities
• Sales rep closing ratio
• Percentage of opportunities through each sales process stage

The Combination

A full, usable, dynamic picture of your operation comes about only through the combination of leading and lagging indicators. Only this combination allows you to catch errors and make changes well before your lagging indicators come into effect.

A skillful combination uses leading indicators in such a way that they connect directly with potential lagging indicators – allowing you to clearly see how they will appear if you proceed as planned. For example, if you add up the value of your opportunities in your pipeline, the percentage chances of their making it through, the ranking of each deal, and other leading factors, you see that – if all goes according to plan – you’ll have $1.5 million for the quarter.

If you add up all your leading indicators and see that you’re falling short of your target, you then have time to do something about it. For example:

• Get more leads into the pipeline.
• Take steps to raise lead-to-opportunity conversion rates.
• Coach and mentor your reps to raise closing ratios.
• Monitor your sales process to makes sure it is efficient.

Automation

Unless you assign one or more sales admin staff full time to the task (which would certainly not be cost effective), you’re going to have a tough time keeping your leading indicators updated. It’s best – in fact, it’s vital – that you have an automated solution that fully incorporates your leading and lagging indicators, and allows you to watch them in real time. It’s obviously best if this solution is also your CRM solution, so everything is in one place. 

So look over your sales operations. Do you have leading indicators that clearly show where your sales are headed and how you’ll get there, along with lagging indicators that show where you’ve been? Make sure these are both in place, and fully incorporated into your sales organization and automation, so you always know where you’re going.

Join Nikolaus Kimla at the Sales 2.0 Leadership Conference in Philadelphia on November 16. 

Comments

[Larry Duckworth]

Good post! "An ounce of prevention..."

Added to these good process flow predictors, deal quality(!) predictors can be even more powerful for avoiding disappointments. These can be set up in most CRMs for true control of the probability and dependability of the deal happening per projections. External tools can be used as well.

B2B Selling is P2P Selling, People To People. Also, compelling needs must exist to provide deal energy. In all of my successful CSO, COO and CEO roles I was heavily focused on deal quality for results prediction (and accurate forecasts to the Board).

Besides the dashboard tracking the above deal flow predictors, I use a 10 points quality rating per deal on a 1-5 scoring for each (5 is strong, and the goal; if not a 5 then remediation is needed). The top five are:
+ We are directly talking to THE Decision Maker;
+ The Decision Maker is our Champion;
+ Compelling needs exist in our solution space, that will justify procurement and change management costs being expended;
+ We have the strongest unique criteria and they will be used in the selection process, whether formal (RFP) or informal;
+ No key recommenders are against us.

These ten checklist items can cause "oh bleep" moments, but it will be early enough to take remediation action. "Quality is never out of style."

I can send you an Excel file for these ten at [email protected] leader.com, or 404-307-0033.

Larry Duckworth
www.linkedin.com/in/larryduckworth