Annual Targets 2023: How to Set Performance Targets
As Chris Cosper detailed in a previous post, we have the ability to record 3 types of metrics in our Rhythm cloud based strategy platform:
- KPIs (Key Performance Indicators)
- Critical Numbers
We focus a lot on KPIs and Critical Numbers, but we don’t talk much about targets. Targets are a handful of goals that we determine and strive to achieve over a set period of time; they are usually set during Annual and Quarterly Planning sessions. We recommend setting Targets for your 3-5 year plan, your Annual Plan, and your Quarterly Plan. Targets are always lagging, or results indicators. They should align with your budget, and they may come from financial goals that you have to hit from your board of directors or for your shareholders. They are often longer-term goals, and sometimes they can be more strategic in nature than your KPIs.
For example, you may set a target in your planning session to open locations in 25 states in the next 5 years. This would not make sense to record on your KPI dashboard to update weekly; it is a more strategic result. Rather than recording it on your KPI dashboard, it might make more sense to develop a Winning Move around expansion in your 3-5 year plan. Then, you can set Annual Key Initiatives and Quarterly Priorities that support that Winning Move so you can execute to achieve your strategic Target of locations in 25 states.
Here’s How to Set Annual Targets:
This exercise is part of our recommended agenda for quarterly and Annual Planning.
- Identify the time horizon for your Targets (Quarter, 1 Year, 3 Years, 4 Years, 5 Years…)
- Ask: What are key financial or other milestones for this time horizon?
- Agree on any financial targets (revenue, profit, cash, etc.).
- Agree on any other targets that are important to your business (# of new stores, # of employees, # of customers, etc.).
- If you are working on Annual Targets, think about what you need this year to be on track to hit your 3-5 year targets.
- If you are working on Quarterly Targets, remember that your quarterly targets have to add up to hit your Annual Targets. Consider what you need to hit this quarter to be on track for the year.
- After you determine your Targets for the year and quarter, discuss whether any of these should also be on your KPI dashboard that you can update weekly. Some of the more strategic or longer term Targets (like # of locations) may not make sense as KPIs, but others will (like Revenue and Profit).
Here’s How to Test Your Targets:
- Do you have a plan for hitting your Annual Targets?
- Do you have KPIs for targets that need to be measured on a quarterly basis and updated and discussed weekly?
- Do you have Key Initiatives or Priorities to support your more strategic or tactical Targets?
- Do you have too many Targets? (Remember that focus is the key to successful execution; identify the most important targets and try to stick to only 4 or 5 to track at a time.)
- Have you communicated your Targets to the company as part of your Annual or Quarterly Plan?
Setting clear targets for the team that are both financial and strategic and recording them in Rhythm is a great way to communicate the results you hope to achieve to everyone in the company. Once you all get on the same page about where you want to go, you are one step closer to executing and achieving that goal!
Looking for some additional KPI Examples to help get you started?
Rhythm Systems KPI Resource Center for all you need to know about Key Performance Indicators. Looking for some KPI Examples to help get you started? Check out our additional KPI and KPI dashboard blog articles:
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4 Steps to Create a Leading Indicator KPI
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5 Simple Steps to Create Useful KPIs (Video)
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