Picking goal and KPI
Setting a goal
"My business is running fine, and I love my small shop and have no intention of growing. Therefor I do not care about setting goals". If this is the way you think about your business, you might as well close it today. Growth is only one goal you can have; your imagination is the limit. A goal might be: earn more money, reach more customers, spend less time working, reduce the number of products, spend more time talking to customers, spend less time talking to customers... as you see goals are just things you would like to change in the business. It might even be to keep the current state, but then you need to define what the current state means, hence it is a good idea to set a goal.
You can also have multiple goals, but it is important that they do not stand in conflict with each other and it is a good idea to focus on only one goal at a time.
A goal should be clearly defined with a target number, which means that none of the suggestions above are very good examples. Instead of a goal that says "earn more money" you should say how much money. But that is still not a good goal. It should be something that you can control. If you have control over how much money you make it is great, but not many people do. Having goals that is outside of your control is a like injecting yourself with a stress pill, not healthy. Instead you could set that as a target and then ask what you need to do in order to reach that target. Maybe call 10 new prospects a day for a month. So, call 200 prospects in a month is a good goal. Because you can measure it and you have full control over the actions needed to achieve that goal. If you then fail to satisfy your target, you can adjust your goal for next month or try some other action and see if that leads to a better result.
How to pick a good KPI
Just as you want to keep the number of goals you work on to a minimum, you want to keep the number of KPI to a minimum as well. But first we need to define what a KPI is. Key Performance Indicator is the indicator that you continuously measure to see if you are on track with your goal. Usually you want to keep you KPI above a certain threshold, but it might also be within a certain range. A KPI is just like a goal, something that you have control over. Which means that defining a goal to get a certain number of customers into your store this month and then measure if you are on track each days is yet another way to put stress on your self. Instead set a goal that you should say hi to at least 80% of the customers entering your store or you should offer a discount code for a sale next week to at least 50% of the customers that enter the store. You can set a counter in the door and print a defined number of discount cards, and the you just check so that you are on track with the numbers every day.
The danger of KPI:s
You get what you measure, or as the saying goes "You get what you wish for". If you say that you need to call 20 prospects a day, it does not help if those prospects are not relevant to your product, if you spend $1000 on ads and you do not see any conversion it does not help to double that amount. You need a quality aspect of your KPI as well. You can also end up in a situation where you reach a threshold of a KPI. One person cannot be on the phone more than 7-8 hours a day unless they are working overtime. And if you only spend time calling clients and you also are supposed to deliver something to the clients you soon need to start producing, hence stop trying to hit your goal for calling clients and get to work. Set a new KPI and make sure you produce x number of hours and lower your KPI for client calls. It should probably still be there, otherwise you run the risk of not having new work when the current project is delivered.
In a small business you can usually get by with a priority list, where you prioritize your next item when your done with the last priority, but as your organisation grows and you become responsible for other people, KPI:s become good tools to control resources without having to micro manage your staff all the time. And even as a small business it is a good thing to at least think about what it is you need to do the next month so you do not get stuck and just manage things as they are thrown at you.
Be aware, these are only me trying to organize my thoughts. My small contribution to the heap of theory and practical tips for business on this vast online notebook. I'd love your feedback, because I see it as a good way to learn to share your thoughts and get other people to critiqu them. So, feel free to share your opinion about this topic. I consider this a living document and intend to update it as new ideas pop into my head.
- kpi, goal, growth