How to Monitor the Leading Indicators of Your Business
Last month’s sales. Last quarter’s new customers. Clicks on your last email campaign. Last year’s customer satisfaction and employee net promoter scores.
Every company tracks these kinds of numbers and celebrates when they’re trending in the right direction. But CEOs often don’t realize that a positive snapshot of the company’s past doesn’t guarantee more wins in the future. To get to the root of what actually drives the performance of the business, CEOs need to master their leading indicators.
Here’s a four-step process to start tracking, measuring, and managing the KPIs that will drive your company to BIG.
1. Separate leading and lagging indicators.
All of the stats mentioned above are lagging indicators. “Last month’s X” is just that: something that happened last month. You can’t assume that the same set of circumstances and processes that led to that X are automatically happening again. If you get complacent, when you pull up these same numbers next month, they could be up, they could be down, and you may have no idea why.
“It’s really easy to get early wins,” says Ramona Cappello, a coach at CEO Coaching International. “And then, all of a sudden, it’s really hard to keep that momentum going if you don’t have the right kinds of steps in place. A lot of times you’ll walk into a business and they may not even know how they got to where they are, so when things slow down, they don’t know what drove it.”
That’s not to say lagging indicators don’t matter. Our clients track and measure them diligently and use them to establish the base they want to grow from.
But a key differentiator between OK companies and great companies is that the BIG ones are even more diligent about their leading indicators. These are the things your team is doing today that determine what your weekly, monthly, quarterly, and annual numbers ultimately look like. If you aren’t tracking and measuring those leading KPIs, then you don’t have your finger on the pulse of your business.
2. Work backwards from your HOT.
In order to identify your leading indicators, start by asking yourself the first of our Make BIG Happen Questions: What do I want? What’s the Huge, Outrageous Target (HOT) that you want your company to hit in the next 12 months?
Think BIG, but be specific. “I want to increase sales” doesn’t work because it’s too vague, and therefore impossible to track, measure, and manage.
“I want to increase sales by 10%” is … pretty good. But if you think your company can hit 10%, there have to be levers you can pull that would make 12-15% achievable targets as well. If you don’t raise the bar a little higher, you’ll never know what your company is capable of achieving.
Once you have your HOT, work backwards to identify the leading indicators that will achieve your goal. For example, if a CEO sets that 15% sales increase goal, the first question we’d ask is, How are you going to increase your sales?
A typical answer would be, by expanding the customer base.
And that’s where a mediocre company stops asking questions. Instead, they start throwing everything they can think of at the wall: social media ad buys, opening satellite stores, racing competitors to the bottom with deep discounts, hiring more salespeople, doubling inventory, etc.
What works? What doesn’t? Who knows. And 12 months later, that company hasn’t just missed its target, it’s probably looking at decreased revenue and low employee retention because of all that wasted effort.
Our Make BIG Happen System includes a detailed breakdown of a company’s Leading-Lagging Indicators Sequence. Broadly, it starts by asking deeper questions. For example:
- How many new customers do you need to hit your 15% sales goal and of what size?
- How many calls do you need to make to create a lead?
- How many leads turn into qualified leads (opportunities)?
- What is the conversion rate from opportunities to proposal?
- What is the conversion rate from initial call to booked client?
- What is the response rate on emails sent?
- How many sales reps do you need to hire, delivering how many sales, and what conversion rate assumptions are needed to achieve your goals?
By simply answering these questions, a CEO would arrive at the leading indicators, the root activities that will lead to hitting that 15% sales growth goal. Managing this process effectively is how you get from here to BIG.
3. Create a Company Dashboard.
Now, put those leading indicators on a Company Dashboard so that every employee knows what your KPIs are and how their efforts are moving the needle. A whiteboard, a secure page on your intranet, a daily email your leaders send to their teams — pick whatever form will make your leading indicators easily visible and accessible to everyone in the organization.
The BIGGEST advantage of a Company Dashboard for the CEO is that you’ll have the information you need to be proactive rather than reactive. If your company is sailing over your leading indicator targets, aim higher. If you’re coming up short, you’ll be able to address the root problem now, before those lower numbers become a lagging indicator you can’t do anything about.
“What gets measured gets improved,” says CEO Coaching International’s Meghan Watkins, who rapidly scaled her startup to over $100 million in revenue. “We have to make it very clear to our team what their expectations are, and then measure at a regular cadence. It might be the number of phone calls that were made on a daily basis or number of new accounts that were won on a weekly basis or revenue for the month. It needs to be done on a regular cycle so that the team recognizes that they are going to be under fire if they are not meeting expectations. It also provides a lot of clarity for middle management to know whether or not their team is achieving success.”
4. Hold your team — and yourself — accountable.
“How do you ensure people follow through on the HOTs?” asks Mark Moses, CEO and founder of CEO Coaching International. “It’s called accountability. Whether you hire a coach or each team member holds each other responsible for following through, you need an accountability system.”
In addition to establishing scoreboards, Mark helps his CEO coaching clients build accountability into their weekly meeting rhythm. “At this meeting, each member reports on what they committed to do that week,” Mark explains. “The scoreboard is reviewed, and new commitments are made for the next week. This system of setting HOTs, developing leading activities, using a scoreboard, and practicing accountability is not just theory. It works in the real world.”
It’s often said that a failed business was stuck in the past. No matter how good your lagging indicators are, they’re still just a measure of where you’ve been. Get clear on the leading indicators that will lead you to Make BIG Happen tomorrow.
About CEO Coaching International
CEO Coaching International works with CEOs and their leadership teams to achieve extraordinary results quarter after quarter, year after year. Known globally for its success in coaching growth-focused entrepreneurs to meaningful exits, CEO Coaching International has coached more than 1,000 CEOs and entrepreneurs in more than 60 countries and 45 industries. The coaches at CEO Coaching International are former CEOs, presidents, or executives who have made BIG happen. The firm’s coaches have led double-digit sales and profit growth in businesses ranging in size from startups to over $10 billion, and many are founders that have led their companies through successful eight, nine, and ten-figure exits. Companies working with CEO Coaching International for two years or more have experienced an average EBITDA CAGR of 67.8% during their time as a client, nearly four times the U.S. average and a revenue CAGR of 25.5%, more than twice the U.S. average.