How well do you really know what drives your business?

You might track your weekly sales to a budget, but your sales total is actually the result of many factors that lead to this result. Some factors might be within your control and others which are completely out of your control.

In the case of sales, this could be the result of your marketing activities, the training and skills of your sales team, the level of customer satisfaction from your last sale or even the impact of the weather (just ask the ice cream seller at the beach if the number of sunny days has an impact on sales!)

These non-financial measures are sometimes referred to as 'lead indicators'. Your financial measures such as sales, margin and profit are referred to as 'lag indicators'.

By examining KPIs (lead) performance metrics and Financial (lag) performance metrics side-by-side, decision makers are provided a powerful framework for understanding the role 'lead'  indicators play in driving the future financial performance. Here is an example of a report showing lead and lag trends.

It sounds more complicated than it really is. The most important thing when looking at lead indicators is to look at trends. Getting started is easy. I recommend you list out all the lead indicators that might be relevant to your business. Decide how you will measure this indictor. For example to measure sales calls, you could decide to set a target that each sales person should make 6 sales calls per day. The unit of measurement is the number of sales calls.

The next most important step is to put a system in place to ensure that all the data gets collected each month and reported to one person or department who is responsible for making sure the data is collated in a timely manner.

Over time you will refine and change what you measure, but the most important thing is to get started rather than worrying about if the lead indicators you have selected are the right ones. It might take 6 months before you start to see any meaningful trends.

Examples of lead indicators:

  • Number of sales calls made / conversion to sales
  • New customer accounts / lost customers
  • Average sale value per customer
  • Customer complaints
  • Orders / jobs delivered on time
  • Employee leave days taken
  • Number of staff training hours undertaken
  • Errors / rework
  • Days of rain

How can we help?

For a number a years we have been assisting clients with implementing and monitoring a system for measuring lead indicators. Using a number of tools we can also link these to your financial performance. The end result is a business owner who is in control of their business and spends more time working on their business -  not just working in it.