Did you know that the majority of entrepreneurs starting businesses fail within the first 18 months? It’s a whopping 80% failure rate. One aspect is failing to keep in touch with customers with the use of deep dialogue.
If you want to address these issues and keep your business afloat, you need to set KPI targets.
It’s especially important if you want to retain your customers in the long run. After all, attracting a new customer costs five times more than keeping an existing one.
Are you ready to learn how to set KPIs? Read on and find out more today.
1. Establish Your Business Goals and Objectives
Start the process by setting your goals. In ideal situations, first list down the KPIs you need to track. Also note down your measurement methods—some fit specific divisions and departments while others fit your operations.
It’s a good idea to set targets for all the associated measurements. But it’s a better idea to focus on your KPIs first. The reason is that these will relate to your top-level strategy.
2. Pick the Most Important KPI Related to Your Strategy
For most businesses, your main KPI relates to a financial measure targeting profitability or revenue. This is the main focus of this post when citing KPI target examples. But for nonprofit organizations, their most important KPI often relates to their mission—like the number of people they serve.
Some of the most valuable KPIs to focus on include sales volume according to target locations, current engagement with existing consumers/clients, and competitor pricing. If your strategy depends on building your brand then you should focus on KPIs surrounding new leads.
3. Determine the Half-Decade Target for Your Chosen KPI
You’ll need to do the math to come up with that final value. For example, your most crucial financial KPI is to increase your profits twice within five years. The oversimplified math is to set a goal of making your profit $100 a day within the next five years if you make $50 now.
4. Work Backwards from the Half-Decade Target
Using the same example above, you can derive around three growth scenarios. It isn’t always the case since you need to figure out how it fits into your current business. But you can use these as a good template:
You want to make your profits grow in a consistent manner across the half-decade. Your target should increase by 20% each year. If you’re earning $50 a day, by the end of the fifth year, you should reach that $100 goal by targeting a $10 increase each year.
You want to make investments toward your goal in the first two years. By then, you can expect the growth to come in the succeeding years. To demonstrate, your target should be around $55 in the first year, $60 in the second, $70 in the third, and $85 in the fourth.
You want to put in the hard work in the first year. You can expect a slower rate of growth in the following years. You need to target $70 in the first year, $85 in the second, $93 in the third, and $97 in the fourth.
Your preferred scenario will determine the way your targets change over that half-decade. It also affects how you implement your chosen strategy. Talk to your leadership team and make this plan as soon as you can.
5. Use the Process Above on All Your Financial KPIs
You can finish the rest of your financial KPI targets once you’re done with your target profit. It’s much easier now since you can make assumptions for other important KPIs like revenue and expenses. You might need to triple your revenue target to achieve a doubled rate of profit, for example.
No matter how specific your case is, you need to finalize your financial KPIs before you move on. The same holds true even if you’re a mission-driven, non-profit organization. You’ll have a more concrete foundation for the next part of the process.
6. Set Your KPI Targets for Your Customers’ Point of View
It’s important to know what drives your customers’ buying behavior. It’s especially critical if you’re in the retail industry since you have more competitors. In the US alone, it’s expected for the entire sector to earn about $6.05 billion each year due to the number of retail businesses.
Knowing your top customer KPI is important to know what strategy to use. Do you need to raise prices, or sell more to your current customers?
Like the financial KPI targets, your methods of setting customer targets depend on your chosen strategy. That way, you can break down the specific goals for each method you use. It can help determine which works and which doesn’t.
7. Link All Your KPI Targets
Setting performance targets using the financial perspective is a little easier than other perspectives. You’ll notice targets relating to customers and people won’t add up in a mathematical way. It isn’t the same as how it happens in the financial perspective.
It’s crucial for all the targets to stay aligned with each other. Your customer growth plan won’t work if you don’t plan to meet your revenue growth target. That means you can’t reach your highest-level financial goals without meeting a target in all the other perspectives.
Get Your KPI Targets Today!
There are a lot of ways for you to set targets for your company goals. But if you’re not sure where to start, you can use this guide. It’s especially important if you’re using software to aid in KPI targets measuring.
Once you get the hang of it, feel free to expand and customize this process. But if you’re having trouble with KPI setting, you can contact us today. We have the right solution to your trouble.