Targets often get a bad rap. We’ve all heard stories about the huge numbers of targets set by the government, particularly in health and education, resulting in those working in the affected areas desperately trying to meet targets, rather than doing the job they need to do.

But when applied properly, setting SMART targets can be a powerful tool for business growth:

  • They act as a motivational tool and, assuming they are achievable (there is nothing more de-motivating than an unachievable target), they can potentially drive everyone on to better results.
  • They can be used as the basis for profit-sharing bonuses e.g. a percentage of all profits over a certain amount could be shared between staff. This can even be done on a departmental basis.
  • The act of setting targets can be part of an annual strategic planning exercise, and should force management to consider what situations may arise in the year and how they can plan accordingly with staffing levels, capital purchases, cash flow and marketing tactics.
Black and White Dartboard to show setting targets

What are SMART targets? 

SMART is an acronym that stands for:

  • Specific: Clearly define what you want to achieve. Instead of a vague goal like “increase sales,” aim for “increase online sales by 15% in the next quarter.”
  • Measurable: Quantify your target so you can track progress. How will you know if you’ve achieved it?
  • Achievable: Set ambitious but realistic targets. Consider past performance, market conditions, and resource availability.
  • Relevant: Ensure your targets align with your overall business goals. Are they moving you in the right direction?
  • Time-bound: Set a deadline for achieving your target. This creates a sense of urgency and helps with focus.
KPIs: The Key to SMART Targets
What are KPIs?

A Key Performance Indicator (KPI) is a measure that assists businesses in tracking how successful they are at achieving their pre-determined business objectives. Knowing how your business is performing can help you find the weak spots in your business where change is needed.

An example of a KPI might be the average profit margin you make on goods you sell. But, KPIs aren’t just financial. It could be an analysis of all the new customers that you get. How many new leads did you get this month? Where did they come from?

There are two main categories of KPIs: lagging and leading indicators.

Lagging indicators reflect the past. 

They tell you what has already happened, such as revenue, profit margin, or customer churn rate. While valuable, lagging indicators can be a bit like looking in the rearview mirror – they don’t necessarily help you steer your business in the right direction.

For instance, by the time you realise that half your customers have switched to your competition, it might be too late to retain them. Additionally, lagging indicators might not provide reasons behind trends or solutions to counter them.

Another disadvantage of lagging indicators is that they tend to focus on outputs—numerical measures of what has occurred—rather than outcomes—what we aimed to achieve. For example, train operators in the UK measure the punctuality of trains at their final destinations. To meet this indicator, operators might alter the service, skipping smaller stations to reach the final station on time, negatively affecting more important measures like customer satisfaction.

Leading indicators are proactive.

They predict future outcomes based on current activities. For example, website traffic, lead generation, or customer satisfaction can be leading indicators of future sales growth. By focusing on leading indicators, you can identify and address potential issues before they impact your bottom line.

Leading indicators are important for building a broad understanding of performance because they provide information on likely future outcomes. But they aren’t perfect. For one thing, they aren’t always a guarantee – just because you send more proposals, doesn’t mean you will get more work. Therefore, think of leading indicators as what might happen, not what definitely will happen.

The power of combining lagging and leading Key Performance Indicators

The most effective approach uses a combination of lagging and leading indicators. Lagging indicators provide a historical baseline and help you measure overall progress. Leading indicators, on the other hand, allow you to be proactive and course-correct as needed.

Here’s an example:

  • Lagging indicator: Monthly sales figures
  • Leading indicator: Number of proposals sent to potential clients

By monitoring both lagging and leading indicators, you can gain a more comprehensive understanding of your business performance. You can see if your sales efforts (proposals sent) are translating into actual sales (monthly figures) and adjust your strategy if needed.

Setting up your measurement system 

Once you’ve identified your KPIs, establish a system for monitoring them regularly. This could involve weekly, monthly, or quarterly reviews, depending on the specific KPI.

How are you going to get this information – in real time?

After defining your KPIs and how often you’ll be measuring them, you’re going to want to think about the tools you need to get the information easily. Use technology to your advantage! With a good cloud accounting platform, you can track and measure the key areas of business performance in real time, any time of the day. We use Xero to pull up those important numbers in an instant when we need to measure how well we’re doing against our targets.

Reviewing your KPIs

Don’t set your targets in stone. Schedule regular reviews to assess your progress and identify any areas where adjustments might be necessary. Did you set unrealistic goals? Are you tracking the right things? Honest evaluation is key to continuous improvement.

And make sure you have clearly set dates to achieve your goals by.

“The key is not to prioritise what’s on your schedule, but to schedule your priorities.” – Stephen Covey

By setting SMART targets based on a combination of lagging and leading indicators, you can create a roadmap for success and achieve long-term growth for your business.

Help setting and reviewing your KPIs

Struggling to set and monitor KPIs? Our Virtual Finance Director service can help! We’ll work with you to identify the right KPIs for your business, establish a measurement system, and conduct regular reviews to ensure you’re on track to achieve your goals.

Focus on what matters and achieve lasting success. Contact us today to learn more about our virtual finance director services. Email enquiries@a4g-llp.co.uk or call 01474 853 856. 

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