There are two types of metrics or KPIs (Key Performance Indicators) most commonly used in sales: leading indicators, sometimes called “forward metrics,” and lagging indicators. To better promote sales effectiveness, a sales organization must focus not only on the outcomes in terms of sales performance, but also concentrate on how those outcomes were achieved.
At Janek, we see many sales teams focusing only on lagging indicators, which measure the outcome of sales efforts—top line revenue, margin, the cost per sale, revenue per rep, etc. Why is there so much focus on lagging indicators? No doubt it is because reps (and sales management) typically get paid on these types of performance metrics.
In contrast, leading indicators measure processes in the sales cycle that predict successful outcomes. These may include items such as: the ratio of leads to sales calls, the ratio of sales calls to quotes, opportunity forecasting, and the percent certainty of closure (EV = Expected Value). In other words, leading indicators examine the steps in achieving the goal, rather than merely the goal itself.
As an example, think about a person trying to lose weight. A goal of dropping 50 pounds may seem like an insurmountable task; however, one pound a week for a year sounds much more manageable. Some call it taking baby steps or breaking up the task into bite-size pieces. In this example, there are several smaller things that a person can attempt to achieve rather than struggling with finding a grand strategy to meet the ultimate goal. The ultimate goal of losing the weight will be accomplished more easily if the individual sets his or her sights on promoting a healthier daily routine. This can include activities such as: (i) cutting down on carbohydrates; (ii) eliminating a food that isn’t good for you (French fries); (iii) increasing exercise; and (iv) charting meals to understand food intake. Once he or she has mastered these, they will see an easier path to overall success.