Most businesses will focus on financials when it comes to target setting. But while cash flow is a crucial part of your business, it's equally as important to create targets for employees outside of your sales team.

Examples of non-financial targets include:

• Respond to new customer service tickets within 24 hours
• Increase NPS Promoters by five per cent
• Reduce your rate of employee turnover by 10 per cent

These kinds of targets are just as vital, although you might not notice the impact immediately. For example, a business might lose five customers per day due to the slow response time of their customer service department.

Without non-financial targets or KPIs in place, it can take months or even years to identify and improve the area of weakness. By then, you’ve lost thousands of customers because of an issue that was otherwise avoidable.

In this article, we’ll look at how to set non-financial targets and why KPIs for employees matter.

Targets are often focused on sales performance. But once you move away from the financials, you’ll find an overwhelming number of possibilities. Where do you focus your attention?

The balanced scorecard was first introduced in 1992, but remains a popular approach to dividing up businesses into key areas.

The balanced scorecard suggests setting performance measures based on four different categories: financial, customer, process and people. Within each category, you’ll develop targets and measures (KPIs) that relate to those areas.

How non-financial targets inform your financial targets

It can be hard to focus on other parts of the business without thinking about your financial targets. But it can help to remind yourself that each of your non-financial targets is designed to boost your revenue over the long term.

Here’s a useful way of looking at how each element of the balanced scorecard approach influences the rest of the business:

1. Improvements to your organisational capabilities drive...
2. ...Internal process. Improvements to your internal process drive...
3. ...Customer and stakeholder satisfaction. Improvement in customer and stakeholder satisfaction drives...
4. ...Finance. This creates improved financial results

The non-financial targets you set can also be used to provide crucial context to your financial performance. For example, your financial KPIs might demonstrate that revenue dropped in July. Why? If you look elsewhere in the business, you might find that the marketing team didn’t meet their targets in the second quarter.

The combination of financial and non-financial KPIs give business leaders a better overview of how business activities influence each other. The balanced scorecard founders Robert S. Kaplan and David P. Norton compared running a business to flying an airplane.

“Think of the balanced scorecard as the dials and indicators in an airplane cockpit. For the complex task of navigating and flying an airplane, pilots need detailed information about many aspects of the flight.

“They need information on fuel, air speed, altitude, bearing, destination, and other indicators that summarise the current and predicted environment. Reliance on one instrument can be fatal,” they said.

In this section, we’ll break down each non-financial area of the balanced scorecard and look at how to set targets and non-financial KPIs.

People

This aspect looks at your organisational capabilities. It includes your employee performance, skills, training and development opportunities and hiring process.

First, think about what you want to achieve. Here are some examples:

• Retain top performing staff
• Make your hiring process more efficient
• Improve the digital skill set of your workforce

Let’s say you want to improve the digital skill set of your workforce. The next step is thinking about how to measure it – this is your KPI. There a number of measurements you could take:

• Number of attendees on a training course
• Course completion rate
• Evaluation scores at the end of the course
• Number of employees who’ve adopted new software as a result

Then, a target has to be established. It’s crucial that your target is measurable and actionable.

For example:

• Increase adoption of software by 10 per cent of workforce by the end of the year
• Have 20 employees proficient at using a specific digital tool by Q3

Process

The process section relates to how your business runs internally. You might want to look at your customer service department, development team or projects. Where could you become more efficient?

An example objective

Deliver more items to customers on schedule

An example KPI

The amount of time it takes from customer order to delivery

An example target

Reduce the number of late deliveries by 20 per cent by the end of the year

Customer

This section relates to how customers respond to your business. You can think about how many customers buy from you, whether they make repeat purchases and how satisfied they are with your service.

An example objective

Retain more customers

An example KPI

Your customer retention rate (customers you lost in a set period / number of customers at the start of the period = retention rate)

An example target

Improve customer retention rate by 5 per cent each quarter

Your KPIs need to be specific, measurable and relevant to your company’s long-term strategy. Setting KPIs for employees will be pointless if they don’t understand exactly what they need to do to hit their goals or why they need to be checking the same numbers each month.

Too often, companies list objectives like “increasing productivity” or “reducing costs” which will be meaningless for the average employee. Instead, translate your objectives into something tangible. There has to be a clear link between their daily tasks and the company’s strategic direction.

If you want them to improve customer satisfaction, what can they do on a daily basis? How can they measure their progress?

It can help to think about these questions to make sure you’ve covered all angles:

• What do you want to achieve?
• Why does this matter?
• How are you going to measure progress?
• Who is responsible for this?
• How will you know you’ve achieved your goal?
• How often will you review progress?

Non-financial KPIs should help to give you a clearer overview of how your business is working. Remember that areas like customer service and internal efficiency will likely prove crucial to your success further down the line. Make sure you understand where your strengths and weaknesses are now.