Leading indicator

What is a leading indicator?

A leading indicator is a measure that moves before the result does, such as the rate at which first meetings become qualified opportunities. Economists use the term for measures like business expectations and building permits, which shift ahead of the wider economy. In sales, leading indicators sit early in the chain that ends in bookings, so they give a manager time to act. Its opposite, a lagging indicator, reports a result after the fact, such as revenue booked or quota attainment.

Why it matters to a revenue leader

Boards, sponsors and comp plans run on lagging indicators, so that is where a revenue leader gets judged. Those numbers are accurate and easy to audit, and by the time they move the quarter is gone. Leading indicators let a revenue leader see trouble while it can still be fixed: a drop in site walks or submitted bids today shows up as thin backlog two quarters from now. A measure only earns the name if it predicts your result. Activity with no proven link to bookings gives you a busy dashboard and the same miss. A lagging number is easiest to act on when it sits next to the leading measures that drive it.

A mechanical services company tracks how many site walks turn into submitted proposals. The rate falls from 60% to 40% in one month while bookings still look healthy. The VP finds two estimators out on leave and proposals stuck in a queue. Fixing it now protects bookings 90 days out.