Imagine that your business has hit a plateau. You are able to attract new customers, but you have experienced very little growth because you are losing customers just as quickly.
Your Business Objective: Achieve sustained net revenue growth.
A Related Business Problem: Customer churn rate is high.
Your Business Goal: Reduce churn rate.
You now have a plan, and you need buy-in from your employees. So you go one step further.
Management Strategy: Offer bonus pay for all employees who effectively maintain customers.
But you have overlooked a key metric. Only 25% of your customers are highly profitable. Most of your revenue originates from 25% of your customer base.
Consequences: You waste resources on keeping customers that offer little to no ROI, and miss an opportunity to attract new customers who fit the highly profitable profile.
In this example, the mistake is in simply selecting a metric that happens to be readily available, without considering whether achieving this goal will necessarily lead to sustained net revenue growth.
Other traps to avoid when setting goals:
· choosing the wrong metric
· setting too many goals
· limiting focus to financial/stock metrics
· allowing an inappropriate timeframe for reaching the goal
· setting goals that are too challenging or not challenging enough
· limiting goals to improvement upon past performance rather than customizing them to the future direction of the company
· making erroneous assumptions about the data used to track progress
Here you have a “Don’t” list. Upcoming entries will discuss the “Do” list, as well as another component of the example above – incentivizing by linking goals to compensation.
Director, Marketing Sciences
Sisk, Michael (2003). Are the Wrong Metrics Driving Your Strategy?. Harvard Management Update, November 2003.