When small business owners want to boost sales, they often make the mistake of looking at the numbers without the proper context. You might tend to focus on the bottom line, but when was the last time you considered all of the factors that go into creating that number?
The reality is that to increase one business measurement; we must first improve all of the little measurements that bring it about. This is the difference between lead measures and lag measures. Here’s what you need to know.
What Are Lead and Lag Measures?
What is the difference between lead and lag indicators? Lag measures are what you want to achieve, the thing you want to improve or increase. It could be sales, leads, newsletter subscribers, or website visits. They’re called lag measures because, by the time you reach that number, all of the events have already happened. The lag measure is the result.
Lead measures, on the other hand, are the drivers that affect that end result one way or another. Lead measures occur during the sales process, and changing the way you approach them will alter your bottom line. By improving your lead measures, you will ultimately enhance your lag measures.
Chris McChesney and Sean Covey illustrate this concept in their book, “The 4 Disciplines of Execution.” Their example is this: while you can’t control whether your car breaks down on the side of the road (a lag measure), you can control the lead measure, which is how often your vehicle receives routine maintenance.
As you can see, there is more to driving sales than just measuring the end result. The trick is to find and track the lead measures that mean the most to your business. It is easy to fall into a rabbit hole and track so much data that you feel too paralyzed to make decisions. Focusing on a few key metrics will help you take action.
Lead and Lag Measures Examples
Lead and lag measures work together to give you the information you need to succeed. Here are some real-life leading and lagging indicators to help you understand what this might look like for your business. The lead measure is listed first, and the lag is second.
Lead vs. Lag
- Gross margin of actual sales last period vs. total profit
- Number of weeks’ stock on hand vs. total inventory level
- Overtime spent or average hourly rate trend vs. total employee direct payroll
- Number of safety training classes delivered vs. workers’ compensation claims
- Length of existing customer’s relationships and patterns vs. customer loyalty
- Results of last period’s engagement surveys vs. employee turnover
You can see how lead measures can help you take a more predictive approach to your business, while only looking at lag measures is more of a reactive approach. Here are a few other good examples of lead measures to consider for your business:
- Number of leads generated by salespeople
- Number of prospects in your database
- Total phone calls and emails to prospects
- Number of sales meetings set with prospects
- Number of website inquiries
- Percentage of leads that converted into a sale
- Average sales yesterday/last week/last month
- Frequency of purchases from your active customers
By making changes to your lead measures, you can ensure a better outcome for your lag measures.
It can take some time to establish which lead and lag measures to focus on. An experienced professional business coach can help. Fill out my contact form and let’s figure out the perfect lead and lag measures for your business.
- What Every Leader Should Know About Lead and Lag Measures - May 21, 2020
- Why You Need to Shift from Annual Increases to Performance-based Pay - May 14, 2020
- Solving Complex Problems Faced by Small Businesses - May 7, 2020