Leading & Lagging Indicators

THE KEY TO EFFICIENT SALES MANAGEMENT

$ 246,590Total Won Amount

Hence, KPIs are needed which help predict what those lagging indicators will be. These are called leading indicators, and they—along with their skillful combination with lagging indicators—are the subject of this white paper.

IntroductionThe use of KPIs (Key Performance Indicators) to measure a sales team’s growth or contraction have been used for many years. Some examples include gross sales, net revenue, products sold, and others that demonstrate how a company has succeeded (or not) through a particular period (quarter or year).

But these particular KPIs are actually lagging indicators—so called because they only reflect what has been done. It is rather like the final score of a football game that’s already been played—by the time lagging indicators are recorded, it is too late to change anything.

We will also be discussing the combined use of leading and lagging indicators within CRM, and why this is such a vital necessity today.

Nikolaus KimlaCEO and Founder of Pipeliner CRM

Leading and Lagging Indicators: The Key to Efficient Sales Management

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WON

vs$ 78,455.25

LOST

$ 4,254.89

Society Pulse

Starfish IT

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SunnySide Inc.

Osiris Tech

Lagging IndicatorsFar too often, sales management is conducted strictly with lagging indicators such as:

¤ Sales

¤ # of units sold

¤ Gross margin

¤ # of different products sold

¤ Market share

¤ Gross revenue

¤ # of deals won

¤ # of deals lost

A clue to the problem with analyzing and managing only through lagging indicators is right there in the name: lagging. It means, “what has already happened.” By the time lagging indicators become clear, it is too late to change anything.

Going back to the football analogy we brought in in our introduction: what if a football coach only coached based on scored touchdowns, and no other indicators? This is an excellent if exaggerated example. The coach would have no way at all to steer his team toward victory.

Of course lagging indicators are needed—if we didn’t have them, we would never know where we ended up and would be totally lost. We need to be able to look back over time and see how we did.

But in managing for the future, we need something that will show us how the activities we are engaging in now will impact our figures for the quarter or the year.

Leading and Lagging Indicators: The Key to Efficient Sales Management

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Set up trial version for customer

Organize ice breaking meeting

Set field Territory

Meeting with customer

Send price list

LeadsQualify this lead

1. Initial Contact

2. Trial setup meeting

3. Invite colleagues

4. Q&A Session

5. Pipeliner proposal

Leading IndicatorsWhich leads us to the other kind of KPIs: leading indicators. Leading indicators could be said to be the KPIs that come between the big lagging-indicator victories.

In sales, here are some examples of leading indicators:

¤ leads created

¤ new leads into the pipeline

¤ leads converted to opportunities

¤ lead-to-opportunity conversion rate

¤ sales rep closing ratio

¤ team closing ratio

¤ % of opportunities through each sales stage

¤ opportunities proceeding within expected time frame

Back in our football analogy, the leading indicators in a football came could be yards gained and 1st downs achieved, as these measure forward motion of the ball toward a touchdown. Yards lost or ball possession lost means the other team is winning—and strategy sure needs to change.

The same is true in sales. A lessened number of new leads means the sales pipeline up the way is going to suffer, as would a lower percentage of opportunities through each sales stage. You can see, by monitoring each one of your leading indicators, how your lagging indicators are going to turn out if no changes are made.

Leading and Lagging Indicators: The Key to Efficient Sales Management

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48.3 %

Weighted TargetWeighted Target

45 %45 %$ 1,035,000.00$ 1,035,000.00

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The Combination of Leading and LaggingThe combining of leading and lagging indicators give you a full picture of your operation. Moreover, the combination gives you a comprehensive look at your risk, and allows you to make changes to improve the scene before your lagging indicators come into effect.

You should be able to utilize your leading indicators to show how your lagging indicators are going to appear, if nothing changes between now and the time of your lagging indicators. For example, if you add up the value of your opportunities in the pipeline, the percentage chances of their making it through, the rankings of each deal, and other leading factors, you see that, if all goes according to plan, you'll have $1.5 million for the quarter. If you add up all your leading indicators and see that you’re falling short of your target, you then have time to do something about it.

For example:

¤ Get more leads into the pipeline

¤ Take steps to raise lead-to-opportunity conversion rates

¤ Coach and mentor your reps to raise closing ratios

¤ Make sure you have no unnecessary activities or tasks

¤ Make sure all necessary activities and tasks are being done

¤ Monitor your sales process to makes sure it is efficient

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No CRM has truly addressed this issue—until now.

Tracking Leading and LaggingNow, it’s one thing to decide what your leading and lagging indicators should be. It’s quite another to begin tracking them in such a way that you can actually use them to gain accurate sales performance insight, and skillfully manage.

For example, you could have all of your leading indicators arranged in a spreadsheet, and either have someone who is constantly updating it, or share it so that reps can update it with their own figures.

The basic issue with such an application—aside from the fact that someone can forget to update it—is that none of them present an instant, visual insight into how all of your leading indicators add up to your lagging indicators, moment to moment, day to day and week to week.

CRM Should Be—But It Isn’tThe traditional CRM approach has been more or less to ”track everything”—primarily the reps, their calls, their progress, their activities and so on. Reps entered their contact, account and activity data.

But what should a CRM solution really be? What should it show a company? The answer: Where sales has been, where they’re currently at, and where they’re going. In order for a CRM to do that, it must function with leading and lagging indicators, so it provides real insight.

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Pipeliner CRM: It’s Built Right InPipeline ViewUnlike any other CRM solution, leading and lagging indicators are instantly and visually displayed. It’s all right

there before you, starting with the main Pipeline View.

Right here you can see how many leads are available, how many opportunities are in each stage of the pipeline, and how many are overdue (per the average length of time for each stage). Your primary leading indicators are right there.

Leading and Lagging Indicators: The Key to Efficient Sales Management

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48.3 %

Weighted TargetWeighted Target

45 %45 %$ 1,035,000.00$ 1,035,000.00

TargetOn the right-hand side, the target is always visible, showing your primary lagging indicators, and how they are affected by all the leading indicators as they now stand.

ArchiveIn Pipeliner, the most important lagging indicator is something not available in any other CRM: the Archive. The Pipeliner CRM Archive is arranged exactly the same as the active pipeline view. Leads and opportunities contain all information present when they were archived—including documents, emails, notes, social media interactions, tasks, and activities.

An in-depth analysis can be done right in the Archive of lost deals—with the same degree of detail that can be done with current opportunities. With Pipeliner’s new Multi-KPI feature, which is available both in the main

Leading and Lagging Indicators: The Key to Efficient Sales Management

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Converted Deals

8Qualified Leads

37Won Opportunities

Pipeline View and in the Archive, you can compare 2 different values (for example Revenue and Units Sold) or 2 different time periods. There has never been an analysis tool like the Pipeliner CRM Archive.

Pipeliner’s other features, such as filters, ranking, account view, and timeline all display leading and lagging indicators in various configurations, allowing you to instantly see how your leading indicators add up to your lagging indicators.

Sales Performance InsightsAs you can see, it’s not just the indicators, but how they are displayed and used. And with Pipeliner, that view has now gained another major improvement with its all-new feature called Sales Performance Insights. With Sales Performance Insights a sales leader or sales representative can see, at a glance, how various leading and lagging indicators have been combined so far for a sales unit, for reps as compared with other reps, and for territories as compared with others. Not only can reps be compared, but so can various indicators for those reps.

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With Pipeliner, you can visually see sunk costs with ease.

Leading indicators include items such as created leads/opportunities, created accounts, and won opportunities. Lagging indicators include won opportunities, lost opportunities, won amount and lost amount.

Deeper MeaningIn our ebook The Principles of Entrepreneurs: How Precise Economic Philosophy Empowers Sales we explore the major principles that make up the economic landscape in which salespeople operate. Within these various principles, we can readily see how each reflects either a leading or a lagging indicator—or, in some cases, both.

Sunk CostsSunk costs are costs that your company has already invested in products or services that must now be profitably recovered through your sales efforts. These are costs that your company has already “sunk” into raw materials, development or production and, where applicable, storage. They are fixed costs because the money has already been spent; they will not fluctuate.

You have probably already guessed that sunk costs are lagging indicators—as by the time anyone knows what a sunk cost is, it has already been spent.

For example, in the Archive feature, described above, you can create a filter that compares product performance

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With Pipeliner, you can simply look at the duration of an opportunity through your entire pipeline, which of course is a major part of your opportunity cost. How much as the company invested in the opportunity, against the time it takes to sell? Pipeliner provides instant, visual answers to such questions.

and sunk cost of a previous period to the current one. With such comparisons you can make a rational decision about that product, continuing to sell it or taking it out of the product line.

You can also compare sunk costs of one product against another or others, so that similar decisions can be reached.

Opportunity CostOpportunity cost is the investment your company must make to achieve a sale, and it has a bearing on every company activity associated with a sales cycle.

In one respect opportunity cost is also a lagging indicator, because in the end, when the deal is won or lost, one can readily see what the opportunity cost was.

At the same time, it could be used as a leading indicator. A company often knows the range in which an opportunity cost is profitable, and when it becomes too much. Simply monitoring the opportunity cost as the opportunity moves through the pipeline will give a company an indication of how profitable that deal will turn out to be if won.

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Utilizing Pipeliner, there is a fast, easy way to know if your product or service has a great subjective value—and that is its speed through the pipeline.

Subjective ValueSubjective value is an extremely important principle in economics and in sales: it means the perceived value of your product or service in the mind of the prospect. It doesn’t matter how high a price or how big a profit margin—if a prospect doesn’t perceive great value in a product or service, it won’t sell.

Subjective value would be a leading indicator. If you know that the value of your product or service is high in the mind of the prospect, your chances of a sale are much greater.

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$ 246,590Total Won Amount

If it’s moving through the pipeline swiftly, it’s got a high subjective value. If a majority are dropping off, you’ve got a low subjective value.

Comparative AdvantageIn sales, comparative advantage would mean optimizing a sales force based on differing strengths of salespeople.

Salespeople generally have differing strengths. Some will better “hunters”—those who are great at finding and bringing in new opportunities. Another might do well at being a “farmer”—nurturing a sale toward a close. And of course there are the closers, who excel at bringing deals through the door.

You could look at your sales rep placement as leading indicators—if you have your strength in the right place, it’s another indicator that your sales are going to improve.

Utilizing Pipeliner’s Performance Insights functionality and evaluating sales performance, you can easily see where you’ve placed reps correctly.

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Pipeliner CRM – Your Sales Management Worktool, Visualized

Sustainable ValueSustainable value describes a product or service that not only benefits the developer and seller of that product, but the customer, the community and society as well. It is an extremely important principle in economics, and also in sales. Ultimately it is only products and services with true sustainable value that will last—products that are innately destructive in the end must fail.

A high sustainable value for a product or service, estimated on its benefit to the user, customer and even society, is another leading indicator of a company and sales force’s success. The greater the sustainable value, the more will be the continued demand.

With Pipeliner, you can pinpoint a product’s sustainable value by its renewal rate. If your renewal rate is high, your product or service obviously has a high sustainable value. Conversely if the product has a high churn rate, the sustainable value is missing for the client.

For overall sales management and for calculating risk, make sure you take both leading and lagging KPIs fully into account.

See how Pipeliner CRM incorporates both leading and lagging KPIs right into its functions.

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Leading and Lagging Indicators: The Key to Efficient Sales Management

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