Leading indicators are measures of expected future performance. It’s like looking out the windshield, and seeing what’s coming down the road.
Lagging indicators measure past performance. Like looking in the rear view mirror. Shows us where we’ve been.
Most of the key metrics we talk about are lagging indicators:
- Sales volume
- Gross profit percentage
- Net operating income
- Cash flows
These are measurements of things that have already happened.
Lagging indicators are useful, so we understand past performance, and can use this information to forecast (and shape) future results.
But lagging indicators alone aren’t enough. We need to use leading indicators to help us predict and prepare for what may be coming next.
Examples of leading indicators:
- Customer satisfaction
- Statistics and case studies show a strong connection between customer satisfaction and increased sales
- Employee satisfaction
- A simple one-question survey to ask your employees: “Would you recommend a friend to work here?”
- Market share
- Higher market share provides for economies of scale, pricing power, and increased profits.
- Beer purchasing index
- Are volumes expanding or contracting? Check out the data put together by Lester Jones from the NBWA
Do this next:
- Add leading indicators to your key metrics dashboard. Use this explainer video as a starting point.
- Check out the Beer Business Finance Association. We talk about beer wholesaler key metrics all the time.
