In a meeting with one of our customers, the CEO used a powerful analogy while discussing KPIs (Key Performance Indicators) with his senior leadership team: “The rear view mirror in a car is 50 times smaller than the windshield.” There is an obvious reason for looking through the windshield while driving a car, but that same focus may not be quite as obvious when the objective is to drive revenue in your organization. What is your focus on; lagging or leading indicators?
Lagging Indicators – What are they?
Lagging Indicators are measures that a company uses to gauge performance by outcomes and results that are measured in the rearview mirror…at quarter-end or at year-end. In most sales organizations, these indicators get most of the attention because they are captured in reports, which are monitored, by executives and shareholders. Lagging indicators include metrics like:
- Total Sales Dollars
- Revenue Growth
- Market Share
- New Customers
Leading Indicators – Real Time Data
In contrast, leading indicators are measured as you look through the windshield, navigating how you are tracking toward your destination. They can be viewed as signposts along the way, warning you of speed limits or detours that may need consideration on route toward the revenue goal. As pipeline is being managed, leading indicators include activities that measure the progress of each person’s revenue journey. Leading Indicators may include:
- The number of qualified opportunities in the pipeline with qualification criteria that is clearly defined for each pipeline milestone.
- Validation of the customer’s business objectives and corresponding solutions from Decision Makers approval
- Decision Maker input and agreement on the Value Proposition your product or service can influence
- Evaluation Plans and Implementation Plans co-drafted with Decision Makers prior to proposals being submitted
How to Tune Up the KPIs in Your Organization
Before you jump in and hit the gas on the KPIs you wish to measure in your organization, make sure that your destination is clear.
- Identify your goals (personal and organizational destinations).
- Develop KPIs that indicate a step-by-step approach of how to achieve the business objectives outlined.
- Validate that your KPIs will appropriately measure progress toward the attainment of the long-term objectives outlined.
- Determine how the KPIs will be tracked and monitored so that re-routing may occur when necessary.
Connecting Leading and Lagging Indicators
As your team becomes more effective at executing Leading Indicator Activities, the Lagging Indicators will improve. There are other advantages to well-constructed KPIs:
- KPIs set expectations for sales reps, indicating key activities for time allocation and opportunity prioritization which are tied to their performance and compensation.
- KPIs improve team communication by putting sales activities into context as a measure toward a common goal: To Drive Revenue.
- Appropriate KPIs will give reps and managers real-time “caution signs” about current opportunities and provide them the insight to make educated decisions with regard to any re-routing of opportunities that may be required.
- KPIs take the guesswork out of evaluation and coaching. With each KPI tied to a coachable sales skill, Managers can use this data to customize coaching conversations with reps which will address skill gaps and boost performance development.
Evaluate the KPIs you are following now. Make the proper adjustments, and you will reach your destination of increased revenue this quarter!