The Difference Between Leading and Lagging Sales Indicators

If you have ever invested, you have probably heard the warning: "Past Performance Is Not Indicative of Future Results." SEC Rule 156 requires mutual funds to tell investors not to base their expectations of future results on past performance before they invest.  

That warning also applies to sales. Most business leaders spend a lot of time reviewing sales results (past performance). But understanding what was sold last month, last quarter, or last year does not provide sufficient insight to manage sales performance.  

The most effective leaders have learned how to use both leading and lagging indicators to predict, adapt, and lead their teams to sales success. 

The Role of Lagging Indicators 

Lagging indicators are outcome-based metrics that reflect past performance. These indicators are crucial for evaluating the effectiveness of sales strategies and making informed decisions. Most businesses are consumed by lagging indicators, including: 

1. Revenue: This is the most direct measure of sales success, indicating the total sales closed in a given period. 

2. Profit Margins: Understanding sales profitability is critical for assessing business operations' financial health and sustainability. 

3. Customer Retention Rates: This metric shows how successfully the business retains its customer base over time, a vital sign of long-term viability. 

4. Win/Loss Ratio: This indicates the company's competitive position and overall sales effectiveness, providing insights into how well your strategies fare against competitors. 

Understanding Leading Indicators 

In contrast to lagging indicators, leading indicators serve as the forward-looking metrics, offering a glimpse into future sales performance. These proactive tools empower leadership to anticipate and shape upcoming results through strategic adjustments. Impactful leading indicators include: 

1. Sales Activity Metrics: Activities like the number of calls made, emails sent, and meetings scheduled are vital. Assuming you are using the right sales approach, and your team is effective (two huge assumptions), high activity levels are often precursors to successful sales outcomes, indicating an engaged and proactive sales force. 

2. Sales Pipeline Growth: Monitoring the rate at which new opportunities are added to the pipeline can be a reliable way to forecast future sales volumes. A growing pipeline can be a positive sign of a healthy sales process. 

3. Lead Conversion Rates: The rate at which opportunities move to the next stage measures the effectiveness of your sales funnel by tracking. A higher conversion rate suggests a more efficient sales approach. 

4. Customer Engagement Levels: High customer engagement levels, measured through interactions such as website visits or successful product demos, often correlate with greater sales success. 

Balancing Indicators 

Mastering the art of measuring sales success lies in balancing leading and lagging indicators. While leading indicators allow for real-time adjustments and proactive strategy development, lagging indicators provide a retrospective analysis that helps validate these strategies and outcomes. 

A comprehensive view of sales performance necessitates understanding and utilizing both types of indicators. In today's dynamic sales environments, these metrics are instrumental in guiding teams toward sustainable growth and success. By effectively leveraging these indicators, sales leaders can more accurately measure success, anticipate future trends, and adapt strategies to ensure continued excellence in sales. 

The balanced use of leading and lagging indicators is not just about measuring where you are or have been, but also about predicting and shaping where you can go. This dual approach equips sales leaders with the insights needed for strategic decision-making, ensuring that their teams are responding to the current market conditions and proactively preparing for future opportunities and challenges. 

Jim Peduto is the Managing Partner and the co-founder of Knowledgeworx, LLC. Owners and CEOs rely on Jim's strategic thinking and transformational growth expertise to win market share and achieve performance gains.