A lagging indicator measures an outcome after it has occurred: revenue, profit, cash collected.
A leading indicator moves earlier and predicts it: enquiries, estimates issued, jobs booked ahead.
Why the distinction matters
Lagging indicators are reliable and too late to act on. By the time revenue has fallen, the cause is months old.
Leading indicators are less certain and still actionable. Enquiries down this week shows up in revenue in six weeks, and six weeks is enough time to respond.
The pairs in a service business
| Leading | Lagging | |---|---| | Enquiries received | Revenue | | Estimates issued | Jobs completed | | Close rate | Revenue per enquiry | | Jobs booked ahead | Utilisation next month | | Overdue invoices aging | Cash collected | | Staff absence | Turnover |
Reading them together
Neither alone is enough. Leading indicators fluctuate and generate false alarms; lagging ones confirm but arrive too late to change.
The useful habit is watching a small number of leading measures weekly and the lagging ones monthly — see the weekly review.
Run rate
Recent performance extended forward — a month's revenue multiplied by twelve. Quick and unreliable in a seasonal business, where it extrapolates a peak or a trough across a whole year.
Trailing twelve months
The last twelve months as a rolling total. It removes seasonality entirely and is a far better read on direction than any single month.
Choosing a small set
Four or five measures, reviewed consistently, beat twenty reviewed occasionally — see key performance indicator (KPI) and the planning cycle.