Trailing KPIs vs. Leading KPIs: Understanding the Difference to Drive Business Success

In the world of business, the saying “what gets measured gets managed” rings especially true. With so many data points available, business owners often struggle to determine which metrics truly matter in keeping their operations on track. One key distinction to make is between trailing (or lagging) KPIs and leading KPIs—and understanding how to use both effectively can make all the difference in guiding your business toward success.

Trailing KPIs vs. Leading KPIs

Key performance indicators (KPIs) fall into two categories: trailing KPIs and leading KPIs.

• Trailing KPIs (often called lagging indicators) measure the results of past actions. Common examples include revenue, profit margins, and customer retention rates. These KPIs show how the business performed over a specific period and are essential for identifying long-term trends.

• Leading KPIs, on the other hand, are forward-looking metrics that predict future performance. These indicators focus on the actions and activities that drive results. For example, rather than measuring revenue (a trailing KPI), a leading KPI would track the number of new sales leads generated each week or the number of client meetings held. Leading KPIs allow you to monitor current activities that ultimately affect future results.

The Benefits of Leading Indicators

While trailing KPIs provide insight into what has already happened, leading KPIs offer predictive power and allow for real-time course correction. By focusing on leading indicators, business owners can:

• Predict Future Outcomes: Leading KPIs give insight into expected future performance, helping you anticipate success or challenges.

• Act Early: If a leading KPI shows you're falling short on key activities (like customer outreach), you can take corrective action before it impacts your results.

• Improve Strategic Planning: Tracking leading KPIs helps build more accurate forecasts and allows for better long-term planning.

• Drive Continuous Improvement: Leading KPIs create a culture of continuous monitoring and improvement by focusing on the specific actions that drive results.

The Problem with Only Tracking Trailing KPIs

Most businesses are familiar with trailing KPIs because these metrics are often included in financial statements, such as profit and loss (P&L) statements. While useful, these metrics are backward-looking and only show what has already happened. If business owners rely solely on trailing KPIs, they may realize too late that they’re off track.

For example, waiting until the end of the quarter to review your revenue numbers may not give you enough time to address a sales slump. On the other hand, if you track leading KPIs like the number of weekly sales calls, you can identify problems earlier and adjust to get back on course.

How to Choose the Right KPIs for Your Business

Choosing the right KPIs means focusing on the actions that drive the results you want. While tracking revenue and profits is important, those are trailing indicators. The true power lies in identifying and tracking the leading activities that lead to those results.

For example:

• If increasing revenue is your goal, track activities like sales calls made or conversion rates.

• If you’re focused on improving cash flow, monitor the speed of invoicing or the number of overdue payments followed up on.

Identifying these leading activities can take time, but once you find the right KPIs, you’ll have a clear and actionable roadmap for success.

Tracking KPIs with a Weekly Scorecard

One effective way to monitor your KPIs is by using a Weekly Scorecard. This tool allows you to track the 5 to 15 most important leading activities that drive your business success on a regular basis. Importantly, the metrics on your Weekly Scorecard should focus on actions—things you can control that directly influence the results you want.

Trailing KPIs provide valuable feedback on what has already happened, but leading KPIs offer an early warning system. They help you predict if you’re on track to achieve your goals, giving you the opportunity to make adjustments before problems arise.

Get the Balance Right: Use Both Leading and Trailing KPIs

It’s important to use a combination of leading and trailing KPIs for a full picture of your business's health. While leading KPIs help you proactively manage activities and avoid issues, trailing KPIs validate that your actions are producing the desired results. Together, they provide a comprehensive view of your business’s performance and empower you to make informed decisions.

At American Dream Legacy Advisors, we understand how critical it is to identify and track the right KPIs. We’re here to help you find and refine the metrics that matter most for your business’s success. Whether you need help setting up a Weekly Scorecard or finding the right leading indicators for your unique goals, we can guide you toward the data that drives growth.

Need assistance identifying your leading KPIs? Contact American Dream Legacy Advisors today to set up a consultation.