- Leading indicators are those that can and need to be actively managed and scaled up (or down) and drive meaningful downstream results, leading indicators are KPIs such as total daily sales calls, daily visitors to your service, % of new users that complete engagement tasks etc.
- Lagging indicators are also very important, but are more often a result of actions that have previously occurred. E.g. Revenue is a lagging indicator as it’s a function of some previous sale, similarly customer churn is lagging, but is often the result of some problem in product quality – you need to focus on the inputs, not the outputs.
- Tracking indicators are those that you generally want to monitor in case problems occur, but there are currently more important drivers to the business. These are metrics that you might have either mostly optimized and there are diminishing returns or you are prioritizing other metrics first. However, you want to keep an eye on them as failures here can be really problematic. Eg. average order value or basket size, conversion or utilization rates, site speed and some measures of customer satisfaction.
Many founders mistakenly only focus on lagging indicators, but it’s critical to develop a deep understanding of how these three sets of metrics are connected and focus on the leading indicators where your efforts can have the biggest impact. Most businesses can be simplified to an equation.
As always, simplicity is key, select as small a number as possible (4-6) to closely monitor on a regular basis and choose metrics that can be easily measured, managed and understood ideally on a near real-time basis.
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