How to you know your business is headed in the right direction? If sales increased by 10% last month then it is likely the right action is being taken. Conversely, sales dropping 10% this month means something is wrong. But is there a way to determine what is causing the increase/decreasing in sales before it happens? The answer is yes.
There are two types of measurements that should be used with your business and frankly, can used with any goal. They are called Lag and Lead Indicators. Lag indicators are those that provide the result (e.g. 10% increase in sales. Lead indicators tell, by definition, that the company is on the right track to increase sales 10%. Lead indicators can be and should be added to any goal. Let’s dig deeper into Lead Indicators.
The following information is provided by the terrific book by Chris McCeshney, The Four Disciplines of Execution.
Two Types of Lead Indicators
There are two types of Lead Indicators. Small Outcomes are ones that focus on team performance but allow the individuals the latitude to resolve or achieve it in any way they choose. An example would be a store that limits it out of stock to popular items to no more than twenty a week. The number of out of stock items is tracked on a weekly basis.
Leveraged behavior are the lead measures that tracked specific behavior. An example for a store would be “verifying out-of-stock items twice a day”. Both are viable lead measures to track.
Let’s go through a personal example. If the goal is to drop 10 pounds this month, the loss of 10 pounds is the lag indicator. A person can’t snap their fingers and lose 10 pounds overnight. To achieve the 10-pound loss lead indicators are needed to determine the actions that will lead to the achievement of the goal; the 10-pound loss. Tracking the lead indicators will tell you if you are on the right track to achieve your goal. Lead indicators for the weight loss goal could be:
- Recording what you eat every day (meals and snacks)
- Drinking 4 glasses of water every day.
- Working out for 30 minutes 3 times a week.
Lead Indicator Example
Let’s look at the lead indicator of recording what we eat.
By the way, Apps like FitnessPal, enable you to determine calorie intake for a certain height and weight and track that intake.
So, if the recommended calorie intake is 2000 calories, eating less that will mean weight loss. Your lead indicator could be “tracking what I eat every day of the week”. At the end of the week, count the number of days your tracked your food. If you recorded all 7 days, you met the Lead Indicator. Do this over a period of weeks, tracking how many times you succeeded in a given week of recording all 7 days of food intake. The more weeks you did all 7 days, the more weight you will loss.
How do you know which Lead Indicator(s) to set and how many?
There is no definitive number of lead indicators. The key is to set enough lead indicators that by tracking them you will achieve your goal while at the same time, don’t set so many that it is so onerous to track the lead indicators that you stop tracking. It is far better to track one lead indicator consistently than have 5 that you track on occasion.
Let’s back to the example of the goal to loss 10 pounds
First, determine the goal, such as lose 10 this month. Next determine what are the lead indicators will best provide the desired result. For weight loss, they could be:
- Recording what you eat every day (meals and snacks)
- Drinking 4 glasses of water every day.
- Working out for 30 minutes 3 times a week.
Determine which Lead Indicator will have the greatest impact on the goal. While they are all good Lead Indicators, research has shown the first one has the biggest impact on weight loss. The key to remember is don’t not make keeping track of indicators a chore. Keep it enjoyable.
What Lead Indicators should I set for my Business?
Different types of business will need different types of lead indicators. The good news is business normally has two types of desired results, increase revenue or cost reduction.
Let’s take the example of increasing sales by 10%.
First map out the process for making a sale. We’ll use the example of an insurance salesperson.
- Determine the average number of insurance sales in a month.
- Determine the number of sales appointments it took to achieve a sale.
- Divide the number of sales into the appointments. If there were 5 sales and 25 sales appointments were conducted, then the ratio is a sale for every 5 appointments.
- Determine the number of calls it took to get an appointment. Let’s say it was 3. Then it took 75 calls to make the 5 sales, or 75 divided by 5 is 15 calls to get an appointment.
- Determine the Lead Indicator(s) to use. In this case the number of sales call will be used.
- The 75 sales calls for an appointment would be broken down into a daily goal. To achieve 75 sales calls in month is 75/20 or is 3.75 sales calls a day.
- Set a Lead Indicator of 4 sales calls a day.
- Track every day if you achieved 4 sales calls that day.
- Track each week if achieved 4 sales calls all 7 days.
Actions:
- Choose a goal.
- Map out the actions that influence the achievement of that goal.
- Determine the lead indicator(s) (e.g. writing down what you eat)
- Determine measurement for the lead indicator (e.g. how many days this week did I record what I ate).
- Review each week how many times you recorded your food intake.
- See impact of lead indicator on your results. Adjust accordingly.