Measure performance and set targets

Measuring business performance and setting targets are essential for business growth. While small businesses may manage without formal processes, growing businesses need clear systems in place to control these processes. This is especially important if you plan to:

• hire more staff
• create new departments
• appoint new managers or directors

Benefits of strategic business reviews

Strategic business reviews help you understand your business performance and identify areas for improvement. They are useful if:

• you are unsure how your business is performing
• you want to maximise business or market opportunities
• your business plan is outdated
• your business business lacks clear direction
• you are struggling to respond to market changes

Setting performance targets and KPIs

Understanding business performance across different areas helps you identify strengths, weaknesses and opportunities for improvements. To measure performance effectively, focus on key performance indicators (KPIs). These are the most important metrics for tracking progress and improving business performance.

Which KPIs should you measure?

Track both financial and non-financial KPIs to measure business performance effectively. For example:

• customers - number of customers, usage levels, customer acquisition and retention rates
• customer service - waiting times, complaints and reasons for dissatisfaction
• market share - how your business compares to competitors and whether it is growing
• staff - employee satisfaction, work quality and attendance

Choosing the right KPIs helps you track progress, improve performance and make better business decisions. See how to choose the right key performance indicators.

Benefits of setting performance targets

Once you have identified your KPIs, use them to set clear performance targets. Targets give your team clear goals and direction. Break down your main business goals into smaller, manageable targets. This makes it easier to build them into day-to-day operations and achieve long-term business growth.

Set your business strategy

To set a clear business strategy, focus on your goals, markets and resources. Consider:

• Business direction - where you are now, where you want to be in 3 to 5 years, and how you will get there.
• Target markets - which markets to compete in, how to enter them, and how they may change.
• Competitive advantage - how you will stand out and outperform competitors
• Resources - the skills, finance, assets and systems you need, and how these may change
• Business environment - internal and external factors that could affect performance
• Success measures - how you will track performance and adapt as your business grows.

You may need support to answer these questions. Speak to advisers, senior staff or business partners. Working together can improve decision-making and strengthen your business strategy.

Key performance indicators (KPIs) help you measure your business performance and focus on what drives success and profitability. There are many KPIs to choose from, so it is important to select the ones that matter most to your business.

Identify key business drivers

Start by identifying the main factors that drive success in your business. These may include:

• profitable customers
• high sales volumes
• improved productivity and efficiency

Review your core activities, products and customer needs, and look for areas where you can improve performance or grow your business.

Evaluate core activities

To assess your core activities, look at what you do, the products you make, or the services you provide. Identify what works well, where you can improve, and whether you can develop new or complementary products or services.

Understand customer needs

Review how well your products or services meet customers' needs. Identify which products and services perform best and contribute most to sales and profit. Use this information to improve or discontinue low-performing offerings.

Identify problems and opportunities

Review key business areas such as pricing, marketing, sales, customer service and operations. Focus on quick wins first, then plan longer-term improvements.

Review financial performance

Regularly assess your financial management, including costs, pricing and profitability. Look for ways to reduce costs, improve efficiency and negotiate better supplier contracts. To find the right measures for your KPIs, focus on the areas of your business performance that contribute most to your success or profitability.

Use KPI tools and templates

You can download our KPI assessment template (DOC, 18K) to help you define and evaluate your KPIs. This helps you:

• track performance clearly
• align KPIs with business goals
• focus on the most important metrics

By presenting the information in a KPI assessment template, you or your staff should be able to easily manage your KPIs and concentrate on achieving the most important or profitable ones.

Track performance effectively

There are many ways to track KPIs and other business metrics, including using certain standardised performance frameworks such as:

• balanced scorecards - for an overall view of performance
• industry dashboards - to display key metrics visually
• traffic light systems - to highlight performance issues quickly

Choosing the right KPIs tailored to your business needs will help you improve performance effectively. See how to use KPIs to assess business performance.

Key performance indicators (KPIs) help you measure business performance and assess how well your processes and activities are working. They link to your business strategy and track progress against specific targets. This helps you understand if you are on track to achieve your business goals.

Types of KPIs

Many types of KPIs exist, focusing on objectives like:

• increasing revenue
• reducing costs
• improving efficiency
• increasing customer satisfaction

Common KPI areas

Fundamental KPIs for most businesses typically fall under several key areas:

• sales - sales revenue, growth rate, customer loss, inventory turnover
• marketing - customer acquisition costs or retention rates
• finance - net income, profit margins, working capital
• human resources - employee turnover and training spend

Many other business metrics could be vital to improving company performance. Choose KPIs that align with your business strategy and focus on the areas that have the greatest impact on performance and growth.

Examples of KPIs for business performance

Common key performance indicators help you measure different areas of business performance. Examples include:

• average time to complete a task
• percentage of tasks overdue/completed on time
• cost of service delivery
• downtime and system availability
• customer complaints received
• volume of tasks per staff
• number errors or defects
• return on investment (ROI)
• profit margins and financial ratios
• revenue per employee
• employee satisfaction index
• order fulfilment time
• production output or yield
• customer satisfaction index
• customer acquisition cost

No single KPI is better than another. The key is to choose the right metrics for your business and goals. For example, a manufacturer may track production speed or error rates, while a service business may focus on customer satisfaction and service quality. Your KPIs should focus on areas you can control. For example, you cannot control interest rates, but you can manage how your business responds to them.

You can download our KPI assessment template (DOC, 18K) to help you evaluate the effectiveness of your KPIs. 

Importance of KPIs in business

KPIs help improve business performance by allowing you to:

• identify problems or opportunities early
• set targets for your business and staff 

Using KPIs helps you stay focused on your strategic goals and measure progress effectively. Find out how to  set business performance targets.

How to measure KPIs?

Once you have chosen the right KPIs, decide how to measure and track them. Break KPIs into smaller parts to make them easier to assess. Review them regularly to ensure they remain useful and accurate.

You can use management information systems and digital tools to track, analyse and report on KPI performance.

Measurement of financial performance is an important part of running a growing business. Many businesses fail because of poor financial management or planning.

Review your financial performance

A financial performance review can help you assess your business goals and plan improvements. When reviewing your finances, consider: 

• Cashflow - this is the balance of money coming in and out of your business. You should regularly review and update your forecast. See cashflow management.
• Working capital - check if your funding needs have changed and compare with industry standards.
• Costs - monitor your cost base and make sure your sale prices cover all expenses. See how to price your product or service.
• Borrowing - review loans and overdrafts and consider cheaper or more suitable finance options. See borrowing finance for your business.
• Growth - make sure your finances can adapt as necessary and support future business growth. Read more on  financing growth.

Key financial performance measures

Profitability is one of the most important measures of business performance. It shows your ability to generate profit after covering all costs. To assess profitability, use financial ratios.

Profitability ratios

Profitability ratios typically fall under two broad categories: margins and returns. Most common profitability ratios are:

• Gross profit margin - profit after direct costs of sales.
• Operating profit margin - profit after operating costs, before interest and tax. Also known as the EBIT (earnings before interest and taxes) margin.
• Net profit margin - profit after all costs, including tax, overheads and interest.
• Return on capital employed - how effectively your business uses invested capital.

Accounting ratios to measure performance

In addition to profitability, use other financial ratios to measure performance:

• liquidity - your ability to meet short-term financial obligations
• solvency - your long-term financial stability
• efficiency - how well you use business assets, such as stock turnover

Measuring these ratios against industry averages, previous years and competitors can help you identify problems and issues within your business. See how to use accounting ratios to assess business performance.

Customer-focused performance is a business approach to measuring how well your business meets customer needs. It looks at areas such as customer satisfaction, retention and response times. A customer-focused approach helps you improve service quality and build stronger customer relationships. 

Customer-focused KPIs

To measure customer performance, use customer-focused key performance indicators (KPIs), such as:

• customer satisfaction score - ratings or feedback from customers
• net promoter score - how likely customers are to recommend your business
• response time - how quickly you respond to customer enquiries
• customer retention rate - how well you keep customers over time
• quality of service - reliability, responsiveness and overall experience
• employee engagement - motivated staff often deliver better customer service

Tracking these KPIs helps you improve customer experience and business performance. See how to use KPIs to assess business performance.

Review your market and customers

Alongside KPIs, review your customer base and market position. This helps you understand demand and stay competitive. A strategic business review can help you assess:

• changes in your market
• new and emerging services
• changes in your customer needs
• external factors such as the economy, imports and new technology
• changes in competitive activity

Importance of customer feedback

Customer feedback is essential – it helps you understand what your customers want and where to improve. You can collect customer feedback through:

• sales data -  shows what customers buy or avoid
• complaints - highlight issues, even if not all customers complain
• surveys and questionnaires - provide structured feedback
• mystery shopping - gives insight into real customer experience

Using feedback helps you improve products, services and business processes. See how to gather customer feedback.

Manage customer information and relationships

Customer relationship management (CRM) software can be a powerful tool for capturing and analysing information about your customers and the products and services they purchase. It allows staff to access customer information quickly, improving service and communication.

Grow your customer base

Selling more to existing customers is often the easiest way to increase sales. However, to grow your business, you may also need to reach new customers or markets. Understanding untapped market segments can help you expand and increase your market share.

As your business grows, you may need better ways to measure employee performance and manage staff effectively. Common methods include:

• one-to-one meetings
• team meeting
• staff appraisals
• annual or 360-degree reviews

Use meetings and appraisals effectively

Informal meetings and formal appraisals are practical ways to monitor employee performance and support development. They allow open discussion, help set clear targets and track progress. This can improve productivity and overall business performance. Regular staff meetings also help you stay informed about wider business issues. They can highlight problems or opportunities early, before they escalate.

Use KPIs for employee performance

You can also measure employee performance using key performance indicators (KPIs), especially financial metrics such as:

• sales per employee
• contribution per employee
• profit per employee

These metrics support, but do not replace, formal appraisals. They can highlight issues that need further review.

Apply performance metrics across your business

Measuring employee performance is easier in some roles or industries, such as sales or manufacturing, where outputs are clear. However, most businesses can apply performance metrics. For example, you can use timesheets to track how employees spend their time across projects or customers. This helps you understand productivity and identify the most profitable use of staff time.

Download a sample performance review form (DOC, 23K).

Benchmarking is the process of comparing your business performance with other businesses, usually in the same industry. It helps you understand how well your business is performing and where you can improve.

What is benchmarking in performance management?

Benchmarking helps you identify best practices used by competitors or industry leaders. You can use this insight to improve your processes, increase efficiency and strengthen your business performance.

Key benchmarking questions

When benchmarking your business, ask:

• Who are the top performers in your industry?
• What makes them the best?
• What can you learn from them?
• What actions can you take to improve performance?

Benchmarking can be a one-off exercise or part of an ongoing performance management process.

Types of benchmarking

A benchmark shows the best level of performance achieved in a specific activity. Common types include:

• internal benchmarking - comparing teams, departments or sites within your business
• external benchmarking - comparing your business with competitors
• generic benchmarking - comparing similar processes across different industries

Focus on benchmarks linked to your key business drivers. These are often similar to your key performance indicators (KPIs).

Choose businesses to benchmark against

It is usually helpful to compare yourself against businesses in the same sector. The right comparison depends on your goals. For example:

• small businesses may compare against average industry performance
• high-growth businesses may compare against market leaders

See also competitor analysis.

Find benchmarking data

Finding reliable external data can be challenging. Useful sources include:

• market and competitor research 
• trade associations with industry statistics
• commercial market reports - they offer great detail but can be costly

Use benchmarking to improve performance

You should use benchmarking data in the same way you use any other performance measurement data you generate - to improve how your business operates. Set clear business performance targets based on your findings. This helps you work towards industry standards and improve results.

Measuring business performance alone is not enough. To improve results, you need to link your key performance indicators (KPIs) and metrics to clear targets and business goals.

Importance of setting targets

Each KPI you measure should have a clear target. Without targets, it is difficult to understand how your business is performing. For example, you may not know:

• if you're on track to meet your strategic goals
• if productivity is improving or decreasing
• if customer satisfaction is falling
• if profits are growing or declining

Use SMART targets

Set business targets using the SMART framework:

• Specific - clearly define what you want to achieve, who is responsible and how it will be done.
• Measurable - make sure you can track progress and measure results.
• Achievable - set realistic targets based on past performance.
• Realistic - focus on improvements your team can control.
• Time-bound -  set clear deadlines to track progress 

Find out how to decide which key performance indicators to measure.

Assigning responsibility and resources

After you set your business targets, assign clear responsibility to a team or individual for delivering each of them. Make sure you provide them with the right resources, such as time, budget and staff, to achieve your targets. Review progress regularly to keep teams motivated and make changes where needed.

Review and improve performance

Regularly review how your targets are working and adjust them if needed. This helps you respond to changes and maintain strong business performance. A clear planning cycle can help you anticipate problems and adapt more quickly.

If you need expert support with assessing your business performance or setting targets, you can appoint a non-executive director or seek help from skilled management consultants.

Competitor analysis or competitive intelligence helps you understand your competitors' strengths, weaknesses and strategies. It is a key tactic for finding out what your competitors are doing and the level of risk they pose to your business. Such analysis involves collecting publicly available information, such as market research, financial filings, online databases, press coverage, market reports or benchmarking data.

Benefits of competitor analysis

Analysing competitors can help you:

• understand your industry and market conditions
• refine your business strategy
• identify gaps in the market
• find ways to differentiate your products and services
• monitor competitor activity and product development 

Key questions to ask

Your competitor analysis should answer key questions, such as:

• who are your competitors
• what they offer
• how they price their products
• how the profile and numbers of their customers compare to yours
• what their competitive advantages and disadvantages are compared with yours
• how they may react to your market entry, product or price changes, etc

You will probably find it useful to benchmark your business performance and evaluate strengths, weaknesses, opportunities and threats to your business - this is known as SWOT analysis. This will show you how you are doing in relation to the market in general and specifically your closest competitors.

How to gather competitive intelligence

You can gather competitive intelligence in several ways, by monitoring:

• What competitors say about themselves - check sales literature, advertisements, press releases, shared suppliers, exhibitions, websites, competitor visits, company accounts.
• What other people say about them - your salespeople, customers, local directories, the internet, newspapers, analysts' reports, market research companies.
• Publicly available business information - trade bodies, industry reports and online databases.
• Commissioned market research - you can contract a commercial company or commission specific market research via an organisation such as the Market Research Society.

In Northern Ireland, businesses can get support from Invest Northern Ireland to research competitors and markets.

Business analysis models help you understand your business environment and make better strategic decisions. There are many tools available, but some of the most widely used include:

• SWOT analysis (strengths, weaknesses, opportunities, threats)
• PESTLE analysis (political, economic, social, technological, legal and environmental)
• scenario planning
• Porter's Five Forces framework

SWOT analysis

SWOT analysis is one of the most popular tools for analysing business performance and strategy. It helps you assess:

• strengths - what your business does well 
• weaknesses - areas where you can improve 
• opportunities - external factors that could support growth 
• threats - risks that could affect your business

Once identified, you can:

• build on your strengths
• reduce your weaknesses
• take advantage of opportunities
• minimise or reduce the impact of threats

See our SWOT analysis example.

SWOT analysis gives you a clear view of your internal and external business environment. However, it does not prioritise actions, so you may need other tools to support decision-making. To improve your analysis, consider the customer perspective. For example, use customer feedback or surveys to identify and prioritise your strengths and weaknesses.

Other strategic analysis tools

In addition to SWOT, other useful tools include:

• PESTLE analysis - helps you understand external factors that affect your business. See our PESTLE analysis example.
• Scenario planning - explores possible future outcomes and risks.
• Critical success factor analysis - identifies the key areas your business must get right to succeed.
• Porter's Five Forces - analyses competition, including suppliers, customers and market threats. Using this model, you can build a strategy to keep ahead of these influences.

Read more about strategic planning for business growth.