Leading vs Lagging Indicators: How to Measure What Drives Results [2026]

Leading vs Lagging Indicators: How to Measure What Drives Results

Every business tracks metrics. Revenue, churn, customer count, profit margin. But here is the problem most teams run into: by the time those numbers move, it is already too late to do anything about them. That is because most businesses over-rely on lagging indicators and neglect leading indicators entirely.

Understanding the difference between leading indicators and lagging indicators is one of the most important distinctions in business measurement. Leading indicators tell you what is likely to happen. Lagging indicators tell you what already happened. If you want to actually influence outcomes rather than just report on them, you need to master both.

This article breaks down the definitions, gives you concrete examples, explains how to find the leading indicators that matter for your specific business, and shows you how to build a measurement system that balances both. If you have read our guide on Business Metrics That Matter, consider this the natural next step: learning which of those metrics you can actually act on before it is too late.

What Are Lagging Indicators?

Lagging indicators are metrics that measure outcomes. They tell you what has already happened. They are called "lagging" because they change only after the underlying conditions have shifted. By the time a lagging indicator moves, the cause is in the past.

Common examples of lagging indicators in business include:

Lagging indicators are essential. They are the scoreboard. You absolutely need to know your revenue, your churn, and your profitability. No serious business operates without them. But here is the critical limitation: you cannot change a lagging indicator directly. You can only change the things that eventually cause it to move.

That is where leading indicators come in.

What Are Leading Indicators?

Leading indicators are metrics that predict future outcomes. They measure activities, behaviors, and conditions that come before results. They are called "leading" because changes in these metrics show up before changes in your lagging indicators.

The defining feature of a leading indicator is that it is actionable in the present. If a leading indicator starts trending in the wrong direction, you can intervene now and change the outcome that has not happened yet.

Common examples of leading indicators in business include:

Notice the pattern. Every leading indicator on that list connects to a lagging indicator, but it moves first. If you track only the lagging side, you are always reacting. If you track the leading side, you can be proactive.

Our complete guide on Key Performance Indicators: The Complete Guide goes deeper into how to categorize and structure your KPIs. The leading vs lagging distinction is one of the most practical frameworks you can apply to any KPI system.

Why You Need Both: The Complete Picture

Some teams, once they discover leading indicators, want to throw out their lagging metrics entirely. That is a mistake. You need both, and here is why.

Lagging indicators keep you honest

Leading indicators can be gamed or misinterpreted. A sales team might stuff the pipeline with low-quality deals to make the leading indicator look good, while actual revenue (the lagging indicator) tells the real story. Lagging indicators are harder to manipulate because they measure actual outcomes. They are the ultimate truth check.

Leading indicators keep you agile

If you only look at lagging indicators, you are driving by looking in the rearview mirror. By the time quarterly revenue drops, three months of suboptimal activity have already passed. Leading indicators give you the ability to course-correct in real time.

The pair creates a feedback loop

The most effective measurement systems pair each important lagging indicator with one or two leading indicators that predict it. This creates a feedback loop: you act on the leading indicator, then verify the impact by watching the lagging indicator. Over time, you learn which leading indicators are truly predictive and which are noise.

This pairing concept is central to what we explore in our article on KPI Framework for Startups. Early-stage companies especially cannot afford to wait for lagging indicators to tell them something went wrong. They need leading indicators to navigate uncertainty.

How to Identify the Right Leading Indicators for Your Business

This is the hard part. Everyone knows their lagging indicators because those are the results they care about. Identifying which leading indicators actually predict those results requires more thought. Here is a practical process.

Step 1: Start with your most important lagging indicator

Pick the one outcome that matters most to your business right now. For most companies, this is revenue, retention, or growth rate. If you have already defined your North Star Metric (as we discuss in What is a North Star Metric), start there. Your North Star Metric is often a lagging indicator itself, or at least a metric with a meaningful delay.

Step 2: Map the causal chain backwards

Ask yourself: what has to happen before that outcome occurs? Then ask again: what has to happen before that? Keep going until you reach activities your team directly controls.

For example, if your lagging indicator is monthly recurring revenue (MRR):

Your leading indicators might be qualified demos booked per week or outbound outreach volume. These are activities that happen well before revenue shows up.

Step 3: Validate the predictive relationship

Not every activity that precedes an outcome actually predicts it. You need to verify that changes in your proposed leading indicator consistently precede changes in your lagging indicator. Look at historical data. When demos booked increased, did revenue follow four to six weeks later? If yes, you have a genuine leading indicator. If the relationship is weak or inconsistent, keep looking.

Step 4: Make sure it is actionable

A true leading indicator must be something your team can influence through their daily work. "The economy" might predict your revenue, but you cannot control it, so it is not a useful leading indicator for your team. Focus on metrics that connect directly to activities your people perform.

Step 5: Test and refine

Your first set of leading indicators will probably not be perfect. Treat them as hypotheses. Track them alongside your lagging indicators for a few months. See which ones actually correlate with outcomes. Drop the ones that do not. Double down on the ones that do.

The article Vanity Metrics vs Actionable Metrics is a useful companion here. Many metrics that look like they could be leading indicators turn out to be vanity metrics: they move, but they do not actually predict anything meaningful.

Common Mistakes When Working With Leading and Lagging Indicators

Mistake 1: Treating all activity metrics as leading indicators

Just because a metric measures activity does not mean it predicts outcomes. Tracking the number of emails sent is an activity metric, but if email volume does not correlate with sales, it is not a useful leading indicator. It is just busywork measurement.

Mistake 2: Having too many leading indicators

If you track twenty leading indicators, you effectively track none. Teams get overwhelmed, lose focus, and cannot tell which metrics actually matter. Aim for two to four leading indicators per critical lagging indicator. Simplicity creates clarity.

Mistake 3: Ignoring the time lag

Every leading indicator has a delay before it affects the lagging indicator. Sales pipeline activity might take 30 to 90 days to convert to revenue. Product engagement changes might take two to three months to show up in churn numbers. If you expect instant correlation, you will discard good leading indicators prematurely.

Mistake 4: Never updating your leading indicators

What predicts success today might not predict it next year. As your business evolves, your leading indicators need to evolve too. Review the predictive power of your leading indicators quarterly. Replace weak ones with stronger candidates.

Mistake 5: Optimizing leading indicators at the expense of lagging outcomes

This is the most dangerous mistake. Teams sometimes become so focused on improving a leading indicator that they lose sight of the actual outcome it is supposed to predict. If your leading indicator is "demos booked" and the team starts booking demos with unqualified prospects just to hit the number, the lagging indicator (revenue) will tell you something is broken. Always keep the lagging outcome as the ultimate measure of success.

Leading Indicators and Your North Star Metric

In our article What is a North Star Metric, we discuss how companies benefit from identifying a single metric that best captures the core value they deliver to customers. Your North Star Metric is typically either a lagging indicator or a metric that has both leading and lagging characteristics.

The power comes from identifying the leading indicators that feed into your North Star Metric. These become the daily and weekly metrics your teams focus on.

For example:

As we discuss in Success Metrics: How to Measure What Matters, the real skill is not just choosing the right North Star Metric but building the measurement system around it that includes both leading indicators your teams can act on daily and lagging indicators that verify you are on the right track.

Industry-Specific Examples

SaaS and Software

E-Commerce

Professional Services

Marketplaces

In every industry, the pattern holds. Lagging indicators tell you if you won or lost. Leading indicators tell you if you are likely to win or lose next quarter.

How YMWT Helps You Identify and Balance Leading and Lagging Indicators

One of the core problems teams face is not that they lack data. It is that they have too much data and too little clarity about which metrics are leading, which are lagging, and which are just noise. The YMWT app was built specifically to help you cut through that confusion.

YMWT helps you map the relationships between your metrics so you can see which ones predict outcomes and which ones just report them. Instead of staring at a dashboard with dozens of numbers, you get a clear picture of the causal chain: what drives what. You can identify where to focus your team's effort for maximum impact.

The app also helps you spot when your leading indicators have stopped being predictive, which is one of the most common and least detected measurement problems in growing companies.

If you are not sure where to start, YMWT can help you find your North Star Metric in 15 minutes and then build the system of leading and lagging indicators around it. That way, you are not just measuring results. You are measuring the activities that create those results, and you can adjust before it is too late.

Summary: Building Your Leading and Lagging Indicator System

Getting this right is not complicated, but it does require intentionality. Here is a simple framework to follow:

The businesses that outperform their competitors are rarely the ones with the most data. They are the ones that know the difference between what has already happened and what is about to happen, and they organize their teams around the metrics they can still influence. That is the power of understanding leading vs lagging indicators, and it is the foundation of every great measurement system.