A leading indicator is a type of metric that can help you predict future performance and fast-track your growth. You can use this data to make sure that your business strategy becomes a success.
What Is a Leading Indicator?
A leading indicator (or leading metric) is a metric that you can use to help make predictions about a business outcome before it occurs. You can use leading indicators to predict future outcomes.
To flesh this out, let’s look at an example of a leading indicator: free trial signups.
In the software-as-a-service (SaaS) industry, it’s common for businesses to offer free trials of their product. The number of free trial signups could be used as a leading indicator of future customer growth. How?
People who sign up for free trials are interested in the product, and likely to become paying customers if they find the product useful. An increase in free trial signups usually indicates a future increase in new customers.
Leading Indicators vs. Lagging Indicators
Now that we’ve defined leading indicators, it’s important to understand how they differ from lagging indicators. Lagging indicators are measures of past performance (e.g., revenue, net profit, customer churn rate, etc.).
In some cases, a metric can be both a leading and lagging indicator. For example, free trial signups could be used as a leading indicator that predicts future customer growth.
But free trial signups could also be used as a lagging indicator that describes the outcome of the free trial marketing campaigns.
While this won’t be the case with every indicator, it is fairly common.
Examples of Leading Indicator
There are an endless number of leading indicators that businesses can track—it all depends on your specific business goals.
To give you some ideas, here’s a list of common :
- Website Traffic
- Sales Pipeline Activity
- Social Media Engagement
- Email List Growth
- Content Downloads
- Free Trial Signups
- Event Registrations
- Job Applicants
- Supplier Inquiries
- Webinar Attendees
Today, there are many analytics tools that automatically track these leading indicators, such as Google Analytics, Stripe, HubSpot, and so on. Knowing how they work can help you successfully grow your business.
How to Use Leading Indicators
Lagging indicators can be used in a number of ways.
Here are a few examples:
- Predicting outcomes (e.g., Based on our demo downloads, we predict a 20% revenue increase).
- Reallocating resources (e.g., We’re getting more first-time users, so we need to increase our customer support capacity).
- Identifying issues (e.g., We’re seeing a sharp decline in webinar signups, why).
- Spotting trends (e.g., There’s been a gradual decline in email list growth, so we need to revise our lead generation strategy).
Leading indicators can be used for a variety of purposes. The key is to identify the leading indicators that are most relevant to your business goals.
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Now that you understand leading indicators, it’s time to put them to use!
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