Have you noticed how powerless you are in front of your scale, when measuring your weight?
You seek to lose weight but the numbers don’t show any sign of improvement. You have tried for weeks but you’re ready to give up.
You’ve been making your life Hell on Earth by downloading this calorie count app, listing everything you’ve been eating.
Also, you’ve used that workout app that tells you how many calories you burnt during this tough workout.
And nothing budges.
In business it’s the same. You’ve been trying to improve the turnover and profit. You’ve been measuring how many sales per type of product you get, but you can’t seem to be able to influence it.
Lagging indicators
The data given by your sales team about turnover, and the information given by your scale are the result of the past.
There is nothing you can do about them. They are blunt facts about the outcome of the actions you undertook.
They are called lagging indicators.
They’re easy to measure, but not usable to take action to improve your performance.
Observing your weight and fat % on your scale, won’t tell you that you are in the right direction, and any hints about what to do to effect them.
Leading indicators
Now, you are wondering, what indicators should you use, so that you can do something about the outcome.
You need to find a way to measure your activities with indicators, that once you increase the performance on these activities, it mechanically transforms into an improvement of your lagging indicator.
Let’s take an example with sales.
You are having a sales cycle between a prospect appearing in your radar, and the close of the sale of about 6 weeks. You know that you manage to close a deal once every three sales : the conversion rate is therefore 33%.
We can deduce that, if you have 100 000€ in prospects showing up at your door, in 6 weeks, you will close 33 000€.
Now the questions are, how do you improve :
- The amount of prospect appearing,
- The proportion of sales concluded,
- The time between the prospect appearing and the deal close?
Once you respond to these questions, you can take actual action on them and improve the leading indicator.
This will result in mechanically closing more sales.
For instance, we could say that you have a list of prospects, and every time you call 100 prospects, you get 1 qualified lead, that will bring 10 000€. It means that you will need 1000 calls to get the 100 000€ turnover.
Your leading indicator is then the number of calls, and the lagging indicator the turnover.
Another element you noticed was that, of all the offers you sent within the first 48 hours of the request, 50% were closed.
Which is – by the way – much higher than you 33% overall average.
Your leading indicator would then be the percentage of offers which were sent within 48h of the request from the prospect.
The same goes with the analogy of the weight loss. You noticed that if you stopped eating dessert, or that you were walking 30 min every day, that you mechanically lost weight after weeks.
Your leading indicators could be then the percentage of meals without dessert, and the percentage of days with 30 min walk. Or, alternatively, the number of minutes of walk every week.
It takes tweaking
The trick is to find the indicators that lead mechanically to the result you set, and that are easy to both replicate and measure.
Sometimes, you will be chasing the wrong indicators, and the result will not be affected.
You then need to adopt a mindset of experimenter, iterating until you find the right leading indicator.
Do you have a doubt about which indicators are appropriate for your own situation? Please drop me a line, I’ll be happy to discuss it with you.