Effectively measuring the overall performance of a business is a key to its success. Business owners often only measure the end results or outcomes of a specific goal. Wouldn’t it make a lot more sense if you could measure each step leading up to to that end goal, therefore having an influence on the outcome? We think so too. We are going to break down lead indicators versus lag indicators, and why you should be incorporating them into your current business practices.
What are lead and lag indicators?
Lead indicators are the individual activities that lead up to a main goal. They are hard to measure, but are easily influenced. Subsequently, they are predictive of goal achievement and can be adjusted to impact the overall outcome. Unfortunately, lead indicators do not guarantee success so it can be difficult to determine which indicators to use. However, different lead indicators can be added to help lead to the goal. In a business sense, lead indicators are those tasks that are typically undertaken by employees.
A lag indicator represents the end goal. This indicator is easily measured, although difficult to improve upon or influence. A lag indicator is hard to influence because it shows what has happened after the event occurs. In a business, lag indicators are often those goals set by management or leaders.
Here is a brief example on lead versus lag indicators. When you want to lose weight, you set a goal (lag indicator) to lose 10 pounds. In order to lose the weight, you create a food log, limit the number of calories consumed, and hire a fitness trainer (lead indicators). The lead measures help hold you accountable to reach your end goal weight.
Why these indicators are important to your business:
People often become disengaged or uninspired from achieving a goal when they do not know the progress they are making, or they believe they cannot influence the progress. Often, organizations have many lag indicators yet forget to include ample amount of lead indicators. In a business or team, there needs to be actionable steps to achieve a set goal. Otherwise, the goal merely becomes unimportant to the team, and often times overlooked. Incorporating lead measures into a team goal (lag) will help team members to maintain focus to accomplish the goal.
As a leader, take a moment to go through your organization’s goals. Are there enough lead indicators listed to help your team members accomplish this goal? Does your team have a clear idea on the action they need to take?
When I ask an agent or team owner “how’s business?”, the typical response I get is something along the lines of “I just closed X transactions” or “so far this year we’ve sold Y houses”. But do these lag measures really tell me the health of the business? The answer is a firm “maybe!” Lag measures like the number of homes sold this week certainly tell us whether or not we are winning right now, at this very moment. But they only paint a partial picture. If you want the complete picture you need to analyze the lead indicators like number of minutes dialed, quantity of contacts made, number of prospects added to the database, quantity of appointments set, number of appointments attended, and amount of listings signed. The indicators noted above can be easily tracked by leveraging a few tools and a bit of focus, and the data you’ll have will empower you to chart your business’s course at a level far greater than if you are only aware of your end results!