Leading Indicators: How Companies Use Leading Indicators

In business, leading indicators look forward to future events and outcomes. Leading metrics analyze present-day data to ensure greater predictability and a company’s future success. Subscriber and customer satisfaction with your product or services can indicate future acquisition, retention, and revenue growth. Other examples of leading indicators include employee performance and elements of the economy at large, such as interest rates and other economic trends.

Leading and lagging indicators predict the business cycle from different approaches. In short, leading indicators use present factors to predict future business conditions while lagging indicators analyze historical data to predict trends.

• Present factors: Leading indicators can look at present factors internally and externally. Internally, understanding turnover rates and employee satisfaction can act as a benchmark for productivity, which can help forecast short-term sales. Externally, stock prices, market conditions, and consumer price index (CPI) are economic indicators that speak to where the economy may be moving.
• Historical data: Lagging indicators, meanwhile, look back at past events to measure success. These key performance indicators (KPIs) may include revenue or subscribers. Lagging metrics are easy to measure and provide helpful insights into a company’s historical growth. No matter the industry, lagging indicators are sturdy performance measurements, providing context for current business conditions and acting as a guidepost for future events.

Companies can use indicators to understand business performance better, allowing companies to harness data and use it to move forward with initiatives and strategic goals. There are many ways to measure and use leading indicators. Companies should collect data from several sources to understand factors that may inform future sales. Surveys and reports can help qualify and quantify customer feedback, social media comments, sales of the most popular products, and employee productivity and satisfaction.

Coincident indicators are real-time indicators companies can analyze as they occur. Coincident indicators offer a quick snapshot of a society or business’ current economic state. Similar to how household income or gross domestic product (GDP) illuminate the larger US economy, the daily sales or product quality metrics highlight the economic state of a business.

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