Leading vs lagging indicators

Steering by lagging numbers alone is like driving using the rear-view mirror. By the time revenue dips, the cause happened weeks ago and the window to fix it has closed. Early signals buy time to react. Lagging numbers still matter, because they are the proof. An early number that keeps rising while revenue stays flat is not predicting anything and should be dropped.

• Start from the outcome. Name one or two lagging results that matter most, such as revenue or churn.
• Work backwards by asking what has to happen first, and how many weeks before. Prefer activity the team can influence, not just observe.
• Check the link against history. Did past dips in the early number come before dips in the result, and by how long?
• Review the early numbers weekly and the lagging numbers monthly.
• Keep the list short. Two or three early signals that people act on beat fifteen that nobody does.

A lagging indicator measures an outcome that has already happened: revenue, profit, churn, retained clients. A "leading" indicator measures something that happens earlier and tends to cause that outcome: demos booked, proposals sent, trial activations, weekly logins. The lagging number is the score. The early number is the play that produces it.

A consultancy that cares about monthly revenue is watching a lagging number. Discovery calls booked this week is the early signal, because calls turn into proposals and proposals turn into revenue a few weeks later.

Choosing a signal that is easy to count but not connected to the result, such as social media followers for a business that sells through referrals. Another is assuming the link lasts for ever. A new price, channel or product can break it, so re-test it every quarter. A third is turning an early signal into a target and watching it get gamed, which is Goodhart's Law at work.