The definitions:

Leading indicator: an early signal that predicts a future outcome. Moves first; the outcome follows.
Lagging indicator: the actual outcome you care about, observed after it happens. Definitive, but late.

Example for a subscription product:

Lagging: annual recurring revenue (ARR), gross churn rate, net retention. These are the things the business is, measured after the fact.
Leading indicators:
- Signup → activation rate (first meaningful action within 7 days of signup). Predicts retention and future ARR.
- Feature adoption depth among recent signups. Users who adopt >3 features in first 30 days churn less.
- NPS / CSAT scores. Predict renewal behavior.
- Support ticket volume trend. Spikes precede churn.

Why you want both:

Lagging tells you where you are. You need it for reporting to the board, forecasting, and knowing if you hit goals.
Leading tells you where you're going. By the time lagging indicators move, it's too late to change the quarter's outcome. Leading indicators let you steer.
Closing the loop. A leading indicator is only useful if you've empirically verified that it predicts the lagging outcome. Otherwise it's a vanity metric.

The instinct test:

If your team celebrates hitting a leading indicator target but the lagging outcome doesn't improve, you picked the wrong leading indicator. Example: optimizing for 'day-1 logins' might goose that number without moving retention — users are logging in once and bouncing.

Conversely: if you only watch lagging indicators, you're driving by looking in the rearview mirror. A 3-month churn spike happens because something went wrong 2-4 months earlier that you could have caught.

Good dashboards show both: leading indicators on the left (update weekly), lagging indicators on the right (update monthly/quarterly). The leading indicators tell the team what to work on; the lagging indicators tell the executive whether it worked.

Practical example:

Lagging: Q3 net retention = 98%.
Leading: activation rate for Q3 signups = 34% (up from 31% in Q2).

The lagging number is decent. The leading number suggests Q4 retention will improve if the activation lift is causal. Now design the confirmatory test.

What's the difference between leading and lagging indicators?

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