Leading and lagging indicators are two categories of metrics that tell you very different things about the health of a business. Understanding the difference changes how you use data to make decisions.
What lagging indicators are
Lagging indicators measure outcomes. Revenue, customer count, churn rate, LTV: these tell you what has happened. By the time a lagging indicator moves, the events that caused the movement happened weeks or months ago. You are reading the result of decisions already made.
Lagging indicators are important because they confirm whether the business is actually growing. But they are poor guides for what to do next, because the actions that would change them needed to happen earlier.
What leading indicators are
Leading indicators are metrics that tend to predict future outcomes. If your historical data shows that customers who complete three sessions in their first week retain at twice the rate of those who complete one, then first-week session count is a leading indicator of retention. If you see it declining, you know something is wrong with early engagement before it shows up in next month's churn numbers.
Leading indicators are the most valuable metrics for a growth team because they are actionable. You can intervene before the outcome is determined rather than after.
How to identify your leading indicators
The starting point is your retention data. Look at the behaviours that retained customers exhibited in their first two to four weeks that churned customers did not. The actions that differentiate those two groups are your leading indicators for retention.
For acquisition, leading indicators tend to be engagement metrics earlier in the funnel: time on site, pages viewed, content downloaded. The specific metrics that predict conversion depend on your customer and your product, and they need to be identified from your own data rather than assumed from industry benchmarks.
The balance between the two
A growth dashboard that only contains lagging indicators is useful for reporting but not for decision-making. A dashboard that only contains leading indicators can optimise for proxies while the actual business outcomes are ignored. The most useful dashboards combine both: leading indicators that tell you where to focus this week, and lagging indicators that confirm whether the focus is producing results.
Lagging indicators tell you what happened. Leading indicators tell you what is about to happen. Build your measurement around both.