Kit Barber explains why managers should track leading indicators, the behaviors that drive results, rather than lagging indicators like revenue. Leading indicators are the inputs you control: customer activity, marketing actions. Lagging indicators are the outcomes that follow.
Actually, what most managers won't do is look at the thing that delivers. Your revenue and your average spends and your retention rate is all a lagging indicator. Do you know what I mean by lagging indicator? No. That's fine, Craig. Lagging indicator. A lagging indicator is something that shows you a result after the effect. For example, if suddenly you get on the scales and you're a stone heavier, then the fact is you're a stone heavier and that's a lagging indicator because it's shown you something that's happened that's made your stone heavier. What we need to look at in business is that, and there's management, and this is key for you guys, is your leading indicators. So it's the things that create the final outcome. So if we're talking about someone that's got a stone, well, what happens? They probably move less, they probably ate too much. But if they manage those bits, the movement and the eating, they wouldn't put on a stone to give you that outcome. So when we look at revenue, for example, we've got that part, which is the finite number, and that's the lagging indicator, that's the outcome. But we need to look at the leading indicator first, so the thing that creates it. That's how we then need to manage the business.
