November 02, 2023

Business growth for successful achieve objective, target, goal or KPI. Education, business management, financial and marketing concept.

Chances are you’re using KPIs (Key Performance Indicators), whenever you call them KPIs or something else, to measure your company achievement versus Goals.

When you set goals you often have a choice to make – do you set them as hard numbers, for example, achieve $10M Sales in 2024 or as a Percent – Increase Sales by 70% compared to 2023. Of course, both numbers can be easily computed but what do you set as a goal?

In my opinion focusing on the Hard numbers – Dollars, Number of Users, and Downloads for primary goal setting is a better choice – the reason is as you come up with your budget it will be based on the $$. And other numbers often correlate to it. For example, everything being equal more free users will correlate to more paying customers. Also, the Work you do tends to correspond to numbers, not percentages, for example, to deliver Sales of $10M you may need to have Sales to have so many customer demos or so many prospects visiting your website, which you need to plan and budget for.  

Setting goals as Percentages also has additional problems. First, you often set the goals for the next period, before the previous period is complete. For example, you may be setting the goals for 2024 in October or November in 2023. At this point, the actuals for the year 2023 are not known yet, and as such if you set the goal for 2024 it will not be clear. What if you end up delivering 2023 above or below the plan? Does it mean the Percentage goal needs to change or the number to hit in 2023? Let’s say you planned for a 70% increase from $5M of Sales, but had a more successful end of the year and delivered $6M, does it mean because of your success you have a higher hill to climb in 2024? This may go poorly, especially with KPIs that directly drive compensation, such as Sales commission. 

The other misuse of Percent is “a portion of” – let’s say you release the new Product and say, this product’s sales must constitute 20% of the Sales by the end of the year. Of course, you mean it well, but this may well be read as “If selling a new product is not possible, let’s decrease sales of the old one”. It is much better to set the $$ goal for the new product, and if demand for old products continues stronger than expected – good for you (assuming you’re making money on all your products). 

With this, you may wonder: does talking about Percent of Change rather than actual value have any use? Yes, it does! It can be wonderful for external messaging – marketing or investor relationships, as well as to keep the team motivated. If you grow your ARR from $100K to $300K in a year it might not look overly impressive but 200% growth is!  

As such I prefer to set the goals as the actual numbers rather than the percent of change, and when computing percent as additional information, which is very helpful for comparison and benchmarking.

Looking for some more Goals, KPIs, and Accountability Ideas? Check out Strategic Consulting for Open Source Founders”

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John Scott

I have always looked at percentage growth as an external number. Especially in a small company. Example an investor or investment fund may generally want 20% YoY on their investment in your startup company (and in their private equity portfolios). A CEO may speak in percentages for a public press release. We aim to grow X service by 25% in the next fiscal year. A private company doesn’t need to disclose actual financials and talk in hard numbers, publicly. But internally, the same CEO is asking for and driving towards actual numbers.

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