When Hitting Your Goal Backfires
Over the past few weeks, I’ve been sharing insights on how to leverage KPIs to increase in your business.
A couple of weeks ago, I talked about reverse engineering your goals—breaking them down into the activities required to achieve them so you’re not just dreaming but executing with a plan.
Last week, I covered the importance of leading and lagging indicators so you’re not running your business from the rearview mirror.
I actually didn’t plan on this becoming a KPI series, but the questions I’ve been getting in response to these emails have been too good to ignore.
So today, I’m going to address a question I got about how many KPIs to track by sharing another KPI concept that’s critical if you want to get not just the results you’re aiming for—but to get them the right way: competing KPIs.
The KPI Trap: When Hitting the Target Misses the Point
Have you ever set a goal, achieved it, and then realized you still weren’t happy with the actual outcome?
Maybe your sales team crushed their revenue targets, but six months later, half those clients churned because they weren’t a good fit.
Maybe your marketing is producing more leads, but none of them are actually leading to closed deals.
These scenarios happen all the time because incentives drive behavior.
If you only measure one thing, people will optimize for that metric—often at the expense of everything else.
That’s why the most effective businesses use competing KPIs—metrics that counterbalance each other to ensure that success in one area doesn’t create problems elsewhere.
Real-World Examples of Competing KPIs
Sales Growth vs. Customer Retention
Want to grow revenue? Great. But if your sales team is bringing in customers who don’t stick around, you’re just filling a leaky bucket. Counterbalance sales KPIs with retention metrics to ensure quality and long-term success.
Quota Attainment vs. Gross Margin
A rep hitting their quota looks great on paper, but if they’re doing it by slashing prices or over-discounting, profitability suffers. Tracking gross margin alongside quota attainment may ensure deals are closed at a sustainable level.
Marketing Leads vs. Sales-Qualified Opportunities (SQLs)
More leads don’t always mean more revenue. If marketing is optimizing purely for volume, sales may end up with a pipeline full of unqualified prospects. Measuring SQLs alongside lead volume keeps quality in check.
Customer Acquisition Cost (CAC) vs. Lifetime Value (LTV)
You can acquire customers quickly by spending aggressively on ads and promotions, but if their lifetime value doesn’t justify the cost, your growth isn’t sustainable. Balancing CAC with LTV ensures profitable scaling.
Short Sales Cycle vs. Average Deal Size
Closing deals fast can help cash flow, but if speeding up the sales process means reps aren’t taking time to upsell or land larger contracts, you’re leaving money on the table. Tracking deal size alongside sales velocity ensures efficiency without sacrificing revenue potential.
How to Identify the Right Competing KPIs
Set Your Primary Goal
Be clear on what success looks like for your business. If you’re not sure where to start, this newsletter from a couple weeks ago walks you through goal-setting.
Ask: What Could Go Wrong If We Optimize for This?
What’s the potential downside of your goal? What behaviors might emerge that technically achieve the metric but in a way that doesn’t serve the business long-term?
If you’re struggling to identify the risks, AI can help you brainstorm. Try this prompt:
"I have a business objective of achieving [insert specific goal with a quantitative metric]. The team responsible for this is [sales team, marketing team, operations, etc.]. I’m concerned that optimizing for this KPI alone could create unintended consequences, or that the team may find ways to achieve it in a way that is counterproductive. Can you help me identify 3-5 competing KPIs that would balance this metric and ensure we get the right results, the right way? For example, gross sales combined with net profit, or lead volume balanced with qualified sales opportunities."
Running this through your AI tool of choice can quickly surface risks and counterbalance metrics that might not be immediately obvious.
Define a Counterbalance Metric—But Just One
The key here is to pick one competing KPI—not five. Adding too many counterbalances creates over-complication, slows decision-making, and leads to inaction.
Instead, identify the single most important metric that will keep your core KPI in check. For example, if you're focused on revenue growth, is profit margin or retention the bigger risk? Pick one and optimize for that balance.
Test and Adjust
No KPI system is perfect out of the gate. Track results, see if any unintended consequences arise, and tweak accordingly.
The Charlie Munger Rule: Incentives Shape Outcomes
It’s important to clarify, this isn’t about not trusting your team. It’s about designing systems that account for human nature.
The late and great Charlie Munger famously said, “Show me the incentive, and I will show you the outcome.”
People respond to the incentives in front of them, even if it’s not what you intended. As a leader, it’s your job to think ahead, anticipate second-order effects, and structure KPIs to drive the right behaviors.
Because if someone can hit the goal in a way that technically checks the box but still harms the business… that’s not on them. That’s on whoever designed the system.
So let’s take the time to do it right.
If you have any questions or feedback on the KPI discussion, just reply and let me know. I’m reading all the emails right now.
