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Setting Targets & Tracking Goals
Data and Analytics
Written & peer reviewed by 4 Darkroom team members
To effectively implement goal setting and tracking strategies, it's essential to envision long-term objectives and plan accordingly.
Long-term Business Outlook
As a founder or stakeholder, it’s important to be clear on what you ultimately want out of the business, what the various outcomes could be, and generally how you would steer the company in that direction.
Here are 5 prompts you should flesh out:
Fundraising/Founding/Acquisition
Is the business bootstrapped? Did you fundraise? What does that mean as far as delivering a positive outcome to investors? Did you purchase the business? At what price?
Stakeholder Makeup/Cap Table
Who are the stakeholders of the business, and what would be the best outcome for the business from their perspective? (This may be different for founders versus investors)
Industry Valuation Standards
Even if you don’t plan on selling the business, you need to know how businesses in your industry vertical are valued and what it takes to get them sold (and to who, typically)
This is usually defined as a multiple of your EBITDA, as well as how much recurring revenue you can project
Outcome / Exit Strategy
Are you planning to hold onto the business and take distributions of profits for a long time? Do you have a roadmap for selling the business? Get specific about what you want out the next ~10 years, even though it’s subject to change.
Core Objectives & Market Challenges
What are the major obstacles (or opportunities) in the way of you achieving the outcome strategy defined above? This shouldn’t be a laundry list of every little challenge, but rather a high-level shortlist of the big things you’ll need to achieve.
Forming & backing into Annual Targets
Setting Goals
Annual targets should align with shareholder expectations and long-term business goals, emphasizing the importance of goal setting and tracking. That horizon is often longer than 1 year. Goal-setting efforts should reflect these longer time periods by allowing for the reality that most businesses take time to generate profits at scale.
These return requirements should be balanced against the addressable and potential market for your offering. Shareholders’ hopes for returns will not be grounded in reality if demand for your products or services does not exist.
The growth rate your business achieves will vary depending on vertical, invested capital, competitive environment, economic conditions, and operational efficiency, among other factors.
Example:
To illustrate one potential scenario - a promising online ecommerce business operating at low sales for 1-2 years, might attract funding that enables scale in year three, getting the business to around $500K in top-line revenue.
In order to avoid operating at a severe loss, the business will need to target aggressive sales goals. Otherwise present and future investors will not see returns on their investment.
In a high-growth ecommerce industry, assuming competitive products and pricing, that business might target $1M - $1.5M in top-line revenue the following year.
Subsequent annual goals should reflect the business’s ability to capture and maintain available market share.
Forming Scenarios
It is helpful to form multiple scenarios for growth, including a best-case, worst-case, and middle scenario.
This allows the business to operationally rally around the best-case scenario in its efforts to innovate and compete while ensuring that the business is financially prepared for potentially weaker results.
This can be done by first developing the ‘middle’ scenario, then increasing those targets by a reasonable margin to create the best-case scenario, and decreasing by the same amount to form the worst-case.
Making Goals Realistic
By leveraging machine learning to form revenue projections, planners can make a quantitative assessment of the business’s growth trajectory to better inform goal-setting.
While the accuracy of these predictions will vary depending on a number of factors, they bring scientific validity into the goal-setting discussion and illustrate likely future results within some reasonable degree of error.
The most popular method for predicting future revenue is called a Generalized Additive Model. This is a linear regression that factors in core trends, seasonality, and other signals to predict future results. Planning teams can work with a qualified data scientist to perform this analysis.
It’s important to note that 1-2 years worth of daily revenue data is needed in order to perform this analysis successfully.
Forming Monthly or Quarterly Projections
When planning monthly or quarterly targets, it is helpful to view revenues as coming from two sources; new customers and existing customers.
After first estimating or using machine learning to project out expected revenues from existing customers, the business can determine how much of the top-line revenue goal needs to be generated by new customers.
For example, if my top-line revenue goal within a given period is $100,000, and I expect my existing customers to drive $20,000 in revenue during that period, I know that my acquisition program needs to produce $80,000 in order for our business to hit the top-line goal.
After determining a goal for new customer revenue, planners can begin to think through how much ad spend will be required to hit those goals, by first estimating the volume of new customer revenue the business would produce in the hypothetical event that it did not advertise at all.
This ‘baseline’ non-advertising revenue contribution is best determined by building a Marketing Mix Model - a statistical marketing attribution methodology that does not rely on pixel data. A skilled data science with domain expertise in the area of digital media can build this model for your business.
In the absence of 1-2 years of prior paid and organic media data, it should be assumed that organic contribution will be minimal unless the business has attracted considerable visibility through efforts such as public relations, organic social media, or events.
Once you have determined how much revenue needs to be driven solely by paid efforts, you can use metrics such as Customer Acquisition Cost and Average Order Value to plan your ad spend, based on prior data or industry benchmarks.
In the absence of data, an experienced growth strategy director can determine the benchmarks that can be used to arrive at the required ad spend.
Example Scenario:
Let’s say we expect a Customer Acquisition Cost of $45 and an AOV of $60, and we need to drive $80,000 in revenue from new customers.
We will start by dividing our revenue goal by our expected AOV and determine that we need about 1,333 new customers in order to hit our goal.
If we expect those customers to cost $45 on average to acquire, that means our ad budget will likely need to be about $60,000 in order to hit that goal.
Assessing Efficiency Requirements
In the example above, we determined that in a given period we need to drive $80,000 in new customer revenue, and can expect to spend $60,000 to do that based on current benchmarks.
We should then determine whether that investment would result in a profitability that is tolerable to stakeholders.
For example, if we spend $60,000 to get $80,000 in new customer revenue while driving an additional $20,000 in baseline organic revenue, our profit on that investment before taking any other expenses into account is $40,000 ($100,000 - $60,000).
If, in the example above, our remaining business expenses equal $40,000, our net profit is reduced to $0. Planners and marketers must determine whether that “break-even” profit is tolerable given the long-term goals of the business. If not - then marketers should rally around reducing the CAC from the identified benchmark through optimizations to product, price, and promotion.
Objectives, Key Results, and Scorecards
Even if the founders are the ones managing the entire marketing program, having clear objectives and KPI’s is a healthy practice. You just need to remain flexible when new information springs up.
Every quarter, do the following:
Form 3-5 objectives that are timely and have associated KPI’s (the objective should not be “improve LTV,” that is a KPI)
Ensure 80% or more of the team’s monthly initiatives are linked to these objectives
Set up a KPI scorecard dashboard you can use to track performance week over week
Monitoring the trend-line of each KPI enables you to track progress towards goals and make necessary adjustments for optimal performance
Effective goal setting and tracking in business hinges on a clear vision of long-term objectives and an understanding of stakeholder expectations and industry valuation standards. By addressing key areas such as fundraising, stakeholder composition, and exit strategies, businesses can lay the groundwork for sustainable growth. Setting realistic targets, creating adaptable growth scenarios, and leveraging data-driven methods for revenue forecasting are essential components of this process. Moreover, detailed planning for shorter intervals and a focus on operational efficiency ensure that businesses not only meet their immediate goals but also position themselves for enduring success.
