How to set Targets and Benchmarks for Metrics?
So far, we have covered how businesses need to find output metrics that align with their objectives.
And, since output metrics are not actionable and are lagging indicators, we need to also identify input metrics and leading indicators that align with those output metrics -- thus building a metric hierarchy.
However, how does a business decide how much should the input metrics improve by?
Setting targets for metrics involves comparing them against industry benchmarks and/or historical performance.
Example:
A mobile gaming startup in Bengaluru might identify 'Daily Active Users' (DAU) 'and Customer Acquisition Cost' (CAC) as their two key output metrics.
They can set a target for DAU based on their past growth rate and competitive analysis of similar games in the Indian market.
Similarly, they can benchmark their CAC against industry averages to ensure they're not overspending to acquire users.
Significance:
Targets should be ambitious yet achievable, motivating teams to stretch their capabilities without being unrealistic.
Benchmarks, on the other hand, should be contextually relevant, reflecting the performance of peers or the industry as a whole, providing a relative measure of where the company stands.