I set my goal by body composition, as BMI (as others have noted) is a flakey measure that applies more to population studies than to individuals. I aimed for a mid teens body fat percentage - on the lean side of normal for guys (mid twenties for the ladies) and started with an initial goal weight based upon the (very gross) assumption that all my loss would be fat mass, and then corrected that as I got closer and saw how the BF% was shaking out. As it turned out, I adjusted goal down another 10 lb (to 190 from 200 lb) to reflect about 10 lb loss of muscle mass - we can minimize that, but next to impossible to avoid altogether.
I am "overweight" on a BMI basis at 26-27, but lean - ish by body composition. There has been some discussion within the ASMBS ranks that over-emphasis on BMI can lead to excessive loss of muscle mass, particularly amongst those starting in the higher BMI range, so it is something of an individual judgement thing.