Leveraging Leading & Lagging Indicators for Business Growth

As a business owner, you are already tracking several lagging indicators.

In this episode, I break down leading and lagging indicators and share how they can help you measure, manage, and grow your service-based business.

Learn to set clear goals and track performance using the right metrics to make informed decisions that maximize success.

Thanks for tuning in to another episode of Collab with Kiva.

See you next time!

Are you ready to take massive action in your business and harness the power of data in your decision-making? Let’s chat 👇🏽

Podcast Transcript:

Kiva Slade 0:01

Welcome to Collab with Kiva, where we let our inner nerd geek out on all the non sexy parts of your business. I'm talking data and operations. Neither as flashy or glamorous, but both are foundational to your business growth. I'm your host, Kiva Slade, your strategy and analytics guide here to break down what feels complicated, so it is understandable and executional. Let's dive in. Hello, and welcome to another episode of Collab with Kiva. I'm your host, Kiva Slade. Today we're gonna get a little nerdy, because we are going to talk about leading and lagging indicators, and how you can use them in your business. So leading and lagging indicators originated in the field of economics. And therefore, they've transferred themselves over into business. Because in honesty, they have a good role to play with in our businesses, because we want to be able to measure how well we are doing, we want to have some measure of, hey, if this happens, what are some likely outcomes that could happen from whatever this initial thing was that we were looking to track. So success really for you as a business owner should be intentional, not accidental. Unless, of course, you've created I don't know something that went and sold like hotcakes, all of a sudden out of nowhere, then it might be accidental with a bit of intentionality in that, because you created it. But the reality is, for many of us, there's a lot of iterations of our business, iterations of our offers, iterations of things that take place. And we're rather intentional about those. And so by being intentional about those aspects of our business, it's also helpful that we're intentional about tracking the performance of our business.

Kiva Slade 2:02

So let's dive in leading indicators, leading indicators express what might happen, not what definitely will happen. And they're usually unique to your business. So I don't want you out there googling leading indicators for a service based business and taking that, like whatever you find, in trying to make it fit your business. In many cases, that's like the round peg trying to go into the, or the square peg going into the round hole. Okay, they're unique to your business. So they can be a challenge to build, and to measure and to benchmark, but it's definitely worth it. For example, sales, your main objective might be to increase sales. Okay, so your lag indicator might be sales for total sales for the month. A simple formula that you could use would look at what would be your leading indicators. So prospects? How many prospects are you finding every single month presentations or discovery calls? Like how many calls are you having, from those prospects? How many calls are being booked? And then how many of those deals are you actually closing? Because all of those things tie in together into you getting to that lagging indicator of total sales for the month. So if you're looking at your month, and you say, I had 100 prospects, let's see, I had 50 presentations, and I close 10 sales. So depending on, obviously what you're selling, and what the value of that is, will those 10 sales get you to that total sales for the month, those numbers are for you to determine. But the law of probabilities will tell you that, hey, in order to get that, that goal that I want to hit, I need to have more prospects. It's almost like a sales funnel, the top of it is super wide, because you're trying to attract as many people as you can. But as people work their way through that funnel, the actual ones who become customers, those numbers do not match the numbers at the top of the funnel. So it's really important to think through what your end goal is, in many cases, your lagging indicator, and what things can you use to measure that are like your day to day activities that can help you and lead you to that last indicator. And it's also just a note of caution. Indicators can be leading or lagging depending on your perspective. For example, if you sign a contract, some would say that's a lagging indicator for maybe your sales department because it's like, hey, we won that one. But it's potentially a leading indicator for your finance team because they're like, ah, there's some money coming in. So it's really important to understand leading indicators, again, are about what may happen, what could happen. Again, if you had 100 prospects, and you had 50 discovery calls, and you close 10 sales, didn't, you know, 10 of those calls, that could lead to X amount of revenue.

Kiva Slade 5:30

So, potential other leading indicators are participation numbers for a webinar, or a conference, the number of products purchased by each customer. So those could give you some insights. For example, people do webinars, if you have an I'm trying to keep the math simple here, and you have 100 people who registered for your webinar, it's kind of like having a party, you should go for like a 50% show operate unless you're like the party planner extraordinaire, even then it's no more than 80%. But you're looking at maybe 50 people showing up for that webinar. And out of that 50, maybe, you know, if we went with 10%, we're talking five, who are actually going to make a purchase at the end. So then your goal would be not to have 100, people register, maybe 1000 people register for that webinar, because then 500 are going to show up and 50 would be the ones that actually purchased. Additional leading indicators are number of calls like into customer service, or user guide downloads, that could tell you more about your customer satisfaction level. How many marketing campaigns you have, again, sales appointments, that relates to sales. Let's see here. Another one would be 360 evaluations, like I had a client that's like what she focused on for corporations was 360 evaluations. Also, though, for that company, having competitive analysis on their wages, their bonus and their benefits, couldn't get me a result related to employee satisfaction. So those are some possible leading indicators. Again, I want to preface that or have the caveat of your leading indicators should be unique to your business. And don't try to cut and paste what someone else is using as a leading indicator, because their strategy for their business is likely different than yours, therefore, they're going to measure different things in their business than you would measure. So you might feel like my business isn't doing what I thought it was supposed to do, well, you're using the wrong yardstick in which to measure it. So that's definitely something to think through. When you're using leading indicators, you also want to make sure that you anticipate and proactively address issues that may come up, obviously, there's tracking issues, there's making sure that if you have others tracking this information that people are utilizing in the numbers in the same way, they are tracking the same exact numbers, instead of maybe pulling a number that you were using as a metric, and they pull a different number. And it's like, oh, wait a minute, we actually are talking apples and oranges. And that's not a good thing. And when you use these leading indicators, they help you with your decision making, and actually your forecasting, because again, forecasting is what you're looking ahead, you're predicting what is going to happen. That's what leading indicators are doing. But there are of course pitfalls to watch out for. You don't want to rely on just one indicator, like Oh, Kiva, I had 1000 people at my webinar, that means I'm gonna have 50 sales.

Kiva Slade 8:48

Let's not make those false assumptions about cause and effect relationships. There's, you know, some things that are correlated, then there are some things that actually have a causal relationship. Okay, so we want to make sure that we make that distinction in our heads, and we're not relying on one single indicator, which is truly oversimplification of your business in many instances, and you're not creating relationships, cause and effect relationships between things that may or may not be related. If we go back to the sales example. If you have 100 people in your pipeline, and you're like, Yes, I am going to have a great year because this is gonna happen. Yeah, but if those 100 people actually don't book calls and those calls aren't actually close, then that leading indicator could be off in terms of what the final outcome is going to be. So that is the quick and dirty on lead lagging, I'm sorry leading indicator so let's talk about lagging indicators.

Kiva Slade 9:54

And they report past results, stuff that's already happened. Total sales for the month, total net are gross profit for the man, these results are in the past, there's nothing you can do to change them their history at this particular point in time. And the reality is, this is what most of us track in our businesses, we track lagging indicators, the things that have happened. Total Sales like monthly sales, annual sales, total revenue, you know, total monthly revenue, total monthly or annual growth, gross profit total or monthly net profit total or monthly annual cash flow. Customer satisfaction, customer acquisition cost. I sound like Mr. Wonderful on Shark Tank, website traffic return on investment. Your let's see costs, profit margin markups fixed costs, there's just so many different things that can fall into those categories of things that we may have tracked that in some instances are things that have already happened, like how many website visitors did you have to your website last month, you can't change that number. If it was five, it was five, if it was 5000, it was 5000. There's nothing you can do to go back and be like, Oh my gosh, let's go ahead and try to increase this so that it's not five is 10. It's not 5000, it's 10,000. You can't do anything about that. Okay. So it's really important that you make a distinction between what is leading, again, which is something that you're looking to see what might happen is forecasting, looking ahead, versus lagging, which is this is there's no way that you can change it. You can't make it different. It is what it is at this particular point in time. So when you're looking at things of that sort in your business, what can you do to track and do better? Because I think the thing that we sometimes well, before I go there, I'll actually pause, because when looking at lagging indicators, historical performance is really important in trends. So the sooner that you are tracking things in your business, the more historical data you will have to pull from in order to see, are there trends? Are there some performance things that always seem to be the same? Maybe for you, I had a client who the fourth quarter was always busy for her. I had another one, the third quarter was always busy for her people will come back from summer break, and all of a sudden it was like, oh, we need to get these 360 evaluations done, we need to get this done. We need to get this, we need you to do these things. And her third quarter was always very busy. Well, she knew it was always very busy, because she knew that these things always seemed to pick up. But when you start to actually track you saw like she was able to make that connection as to why the busyness always wind up happening, just like the client who Q4 was busy for her. In many instances, people were realizing that either a for some of her clients, they were leaving their corporate jobs and going, you know, full hog on their side hustles. And they needed her services for that. Or there were entities, corporations who had money that they needed to get off their books by heavy in Q4. And they needed her services for that.

Kiva Slade 13:33

So the more data you have, the more things that you have tracked in your business. And let's be clear, not everything needs tracking, just because there's a number attached to it doesn't mean that you need that data. And so being very specific about what you are tracking, but the longer you have to look back, the more is the easier it is to actually see these kinds of trends and see things so that you can be prepared for them that you can anticipate them and be able to capitalize on what is typically something that happens, you know, on a repeated basis in your business. And so I think some other pitfalls, though to also watch out for is taking the time to look at the data to identify root causes or underlying issues. So therefore you don't make assumptions about why certain things happened in the business. So taking the time to look back at the information, identify those real root causes, identify what could be underlying issues around certain things, maybe your sales totally tank in June, or July, okay, no one's booking calls with you, no one's visiting your website. What is that related to? Maybe your client base is parents who, hallelujah their kids are out of school and they have taken off for the beach and vacations and mountains and whatever the thing is, therefore, they're not interested at that particular time of the year. So what could you use that information to say, like, okay, let's underline is really the root cause of why these people are just totally vanquishing themselves for me. If it is, then you know that that's actually some downtime in your business, that you're not having to spend, you know, in order in amounts of your energy on attracting clients. Because that time of the year, they're not interested. So really taking the time to identify patterns, look for opportunities, obviously, that you can improve things. But remembering that when you're looking at lagging indicators, it's done. It's nothing, you can change. You can't go back and change those numbers, you can make improvements so that future numbers are better. And when it comes to us, as business owners, we have to understand that leading and lagging indicators, they actually work together, we need to track both of them in our businesses, not one or the other, not one more than the other, we need to do both. Ultimately, as a business owner, we're in business to maximize revenue, profit, cash flow, all of those things. And I know everyone wants to be heart centered, and all these other things. And you can be that and still maximize revenue, profit, cash flow, and all of these other things, including long term net worth. And you do that by being heart centered and producing great results or in 10 times greater results for your clients. But also at that same token, you also have a duty to how can you reduce costs, like how can you decrease your expenses like business, you have two things that you're going to do, you're going to increase sales, decrease expenses, like those two things just work in tandem together. And that's how leading and lagging indicators work in tandem. You need to have both in order to have a fuller, complete, more accurate picture of what is taking place in your business. And so here's some tips on how to set some of these indicators, especially for the leading ones because again, lagging indicators, most people are already tracking most of those things in their businesses as it is they are.

Kiva Slade 17:40

They're easy to track because again, they're not as specific to one person's business as another. So define your business goals in the results you want to achieve. There's no one size fits all again. So don't go taking Sally's or Bob's leading and lagging indicators and saying these are now mine. Really analyze your business, your own business. And what are the value drivers in your business, those activities that lead you to future results. If your business is highly referral based, then you need to have a very good referral network. And that means that you need to stay in touch with people you need to remind people every now and then maybe of what you do so that you stay tip of tongue, top of mind. Therefore you need to make time in your schedule to make those things happen. If your business is reliant on you showing up on social media, you need to make time for that in your business. Maybe you are an in person networker extraordinaire, and you know that you do your best work and your best prospects come in from when you go to trade shows, then you need to make it a priority to take yourself to trade shows. What are those things again, that are the movers, the shakers, the drivers to get you to your business goal. So this really needs to be connected to that strategy. And so once you have that, find and measure your goals and results start with obviously your strategy, what is it that you want to achieve? You can set goals around financial performance, customer performance, market performance, increased profits, improve customer satisfaction. Maybe you have a brick and mortar and you have a location in one city. But you notice that your online sales are coming from another city and you're thinking about maybe you want to go sell and open up a location there that you can gain some additional market share. Whatever it is for your business. Once you are clear about what you want to achieve, you want to put those measures in place, so you can track the outcome of those results. So you're going to have to define your indicators, you're going to have to define what that outcome is, so that you have your lagging indicators, as well as what are the day to day steps that will be your leading indicators to get you to that goal.

Kiva Slade 20:23

So identify the value drivers is number three. In that step you really are thinking through, like, what questions do you need to answer you ask yourself, like, what do I need to do to achieve my goals and results? What are the key activities to drive my success? What market conditions need to be in place for this to happen? If you're trying to sell a high ticket offer? And there's like a recession? Like maybe you might want to think about that, like these market conditions may not be conducive to this offer that I am about to launch? So are there things that need to be tweaked or change? Or is there a way to break this offer down into multiple pieces of an offer? What needs to be in place, and then start to define what your leading indicators will be. Again, they're going to be connected to your value drivers, what things can be the measures and activities that you need to do to achieve your goals and results. So consumer behavior market trends, like if your business is built on Facebook ads, and you know that Facebook ads might see some changes coming down the pipeline, what do you need to do differently in your business. So those four steps, again, are defining the business goals and results that you want to achieve fine measures for your goals and results, identify your value drivers, and then define your leading indicators. So those are four steps that you can take to really hone in on what are the leading indicators for your business, I cannot stress that enough. And so again, these leading and lagging indicators, they work together to give you a more complete, holistic picture of what is taking place in your business. They're definitely connected. Some indicators can be leading for one part of your business, lagging for another part of your business and that it's important to also recognize that this is not a strict black and white. You are only allowed to be a leading indicator, you can never cross over the line to be lagging. There are some times where that's going to happen.

Kiva Slade 22:41

But understanding that, and knowing that will help you as you are tracking your leading and lagging indicators in your business. And again, all of this relates to how do we have better performance? How do we have more businesses that are more sustainable, and they last longer. The statistics are still not that great on what it means to have a business in this country or in this world even, and how those smaller businesses, how they have longevity. And in many cases, as I've shared before, we need to be data informed we need to know and have access to data so that we can make better decisions in order to have that longevity, increase that impact that we're looking to make through our offers through our services through how we serve our clients. And also just hey, making the world a better place and because of us and what we do. So really, it's important to think through what that looks like for your business. If you need some help in that area, feel free to DM me, feel free to email me, reach out to me on my website, the516collaborative.com. But I definitely want you to look to incorporate leading and lagging indicators in your business. And be proactive about it, not necessarily reactive about it. But literally be proactive and get in front of your data and be proactive in collecting data and knowing how to measure things in your business. That level of business intelligence will truly help you on your journey. Thanks for tuning in, and I will see you next time. Thanks for tuning in to another episode of Collab with Kiva. I'm wildly cheering you on as you go forth and execute data and operational efficiencies in your business. If you need additional support, connect with me via my website, the516collaborative.com. Your reviews on Apple are appreciated. See you next week.

Meet Kiva Slade - the Founder and CEO of The 516 Collaborative. With a unique background in high-power politics on Capitol Hill and sixteen years as a homeschooling mama, Kiva found her calling in the online business world as a trusted guide for entrepreneurs looking to build the business of their dreams.

Kiva's work began behind the scenes, orchestrating the back end of businesses and managing teams. But her inner data diva couldn't help but notice that small businesses needed help harnessing the power of data for growth. So she and her team set out to uncover and tidy up the data required to enable clients to grow their businesses confidently and easily.