How to set business goals and objectives 101: best practices for your sma...

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How to set business goals and objectives 101: best practices for your small business
Posted on April 24, 2010

As a marketer or owner/operator of your own business, the importance of setting business goals and objectives cannot be understated. Particularly for owner-operated enterprises, objective setting is often done on an ad-hoc basis. (Sound familiar? Thats ok.) Like all things in life, there is a first time for everything. You will find that setting goals for your business is the best way to measure your success. Heres how it works. Strategic business objectives are the stated milestones that you want your business or organization to achieve. The benefit of developing defined, strategy objectives is that they provide a benchmark against which the small business owner (thats you!) can gauge their progress. Defining Strategic Business objectives 101. All successful organizations, from one-person home-based businesses to Fortune 500 companies, will define their objectives using these 3 rules. 1. Objectives must be measurable and quantifiable. Lets say for example that you are the owner of Torontos Best Pizza, a pizzeria offering take out and delivery services. (Watch out for that brand promise!) You set out to define your objective. You write it down: I want to increase my sales. Lets build from here. Successful organizations select a goal that can be easily measured and quantified meaning you have to pick a number and stick to it. This can be as simple as a sales, revenue or profit number, or it can be expressed as a %. (See section below, Measure what makes sense.) By way of example, Torontos Best Pizza wants to increase sales of delivery pizza by 75% as measured by number of units sold. A good objective? Not really. 2. Objectives must have a timeframe.

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You have to set a time horizon for your objectives. If Torontos Best Pizza wants to increase sales vs last year by 75%, thats fine but not so fine not if it takes 50 years to do so. Pick a time frame: a year, a month, a week, a day. Running with our example, Torontos Best Pizza has decided to increase sales of delivery pizza (as measured by number of units sold) from July to September by 75% versus the same period last year. Whew hang on, theres more. 3. Objectives must be attainable. This seems intuitive but you would be surprised how frequently this rule is overlooked. Consider your knowledge of your industry and your competitors. Is it realistic to expect your sales to double versus last year? Perhaps. But set your goals at a level that be obtained, or perhaps slightly above. Our pizzeria owner has considered this and realized that a 75% growth in sales is probably unlikely. After reviewing past performance and the actions of competitors, the owner wisely settles on an obtainable objective of 10% increase in sales. To recap, we have gone from: I want to increase my sales. to: I want to increase sales of delivery pizza by 10% as measured by number of units sold from July to September versus the same period last year. Guess what, small business marketer: You now have a strategic business objective to work towards. Measure what makes sense. There are almost an infinite number of yardsticks you can use as a business objective. Many organizations multiple measurements. You have to pick the measures that best fit your business and your competitive environment. Market share objective: Often stated as a percentage, this demonstrates (from Wikipedia: according to Carlton ONeal) the percentage or proportion of the total available market segment that is being serviced by a company. It can be expressed as a companys sales revenue (from that market) divided by the total sales revenue available in that market. It can also be expressed as a companys unit sales volume (in a market) divided by the total volume of units sold in that market. Back at Torontos Best Pizza, you could ascertain through research that Toronto consumers spend about 10 million dollars a year on delivery pizza. This is the size of your market segment, or your competitive universe. Lets say you sell $500,000 worth of delivery pizza a year. This means that the market share for Torontos Best Pizza is 5%. % growth in units objective: This sets your growth in a given measurement (say, for example, number of units

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sold) against the same measurement from the same period last year. For Torontos Best Pizza, who recorded 4000 delivery sales last March and 5000 delivery sales this March, has enjoyed a 25% growth from the same month prior annum. (Take the difference between the two numbers, 1000 units, and divide by the first number, 4000, to get 0.25 or 25%.) % growth in revenue or profit objective: this works the same way as % growth in units, only you substitute the number of units sold for your revenue or profit. Sales variance objective: The number of customers buying from your website or showroom. Can be expressed as a number or %. Sometimes referred to as customer count. Spend per customer objective: Defines the dollar amount spent per customer in a single transaction. Can be compared as a number or % against prior period results. This is a standard retail objective. Revenue or profit per square foot objective: common amongst retailers with showroom space, this objective demonstrates how efficiently you are using your physical space vs. prior time period. Closing ratio objective: Number of sales obtained versus the number of offers or quotes tendered. There are a myriad of others, but most small businesses will include a mix of several of the above when defining their strategic objectives. Your horizon: how often you should set objectives for your business. Like taxes, goal setting is never a once-and-done effort. Many organizations set objectives on a yearly basis, then create a sub-set of shorter term goals, often on a monthly or quarterly basis, to provide mid-year insight in their success (or, gulp, lack of success.) How often you set and update your objectives (I call it your objective horizon) will depend on the nature of your specific business. Consider: Your fiscal year. If your year runs from June to June, then this may be an ideal timeframe to use for objective setting. Seasonality: if your business experiences seasonal changes in supply, demand, or revenue stream, you may want align you r objectives on a smaller time-scale to accommodate these variances. (Example: 4 sets of objectives per year, each different based on the expected fluctuation in business activity.) A good example of such a business is a car dealership, which will likely see peak activity in the spring and summer, and a lull in revenue during mid-winter. These variances are tied to consumer behaviour which in turn impacts variance in demand throughout the year. The length of your buying cycle. Some businesses have a very long shop-to buy process. Consider high-end medical equipment, sold to large health institutions and hospitals. These complex and often customized products can sport price tags in the millions of dollars, the purchase of which is often made by consensus of a large number of individuals. As such, it can take a seller a relatively long time often over a year to secure a final agreement

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to purchase. In these cases, a long-term objective horizon (say, 3 years) may be appropriate. Ok, Im planning on making this post into a downloadable whitepaper, to be made available on the resources section of this blog. Next up: back to building your own strategic marketing plan.
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10 Responses to How to set business goals and objectives 101: best practices for your small business
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