Simeone has done a fine rebuilding job following the departure of key performers like top scorer Diego Costa and goalkeeper Thibaut Courtois and Atletico won the Spanish Super Cup in August by defeating city rivals Real Madrid.
Sunday's 3-1 La Liga defeat at Barcelona, however, left them four points adrift of leaders Real and three behind second-placed Barca, denting their chances of last year's success when they won the Spanish title for the first time in 18 years.
They also reached the Champions League final in which they came within seconds of beating Real before running out of steam and losing 4-1 after extra time.
"Obviously what happened last year was unbeatable," Simeone told Spanish television broadcaster Canal Plus.
"This season we have made great progress and we are in good shape but we can improve and the team is getting better," added the former Argentina captain.
"The truth is that I don't know what the limit is. Our goal is to finish third because the club needs that and it's important to continue growing as an institution."
Further proof of Atletico's credentials is that they are on the verge of knocking holders Real out of the King's Cup with a 2-0 advantage ahead of Thursday's last 16, second leg at the Bernabeu.
They are also through to the Champions League last 16 where they face Bayer Leverkusen over two legs at the end of February.
"Atletico is getting closer all the time to where it wants to be," Simeone told Canal Plus.
"I think we have more possession this year and that is something that all coaches like.
"But possession also let's the opponent settle and I like it if it serves to unsettle. But if it makes you lethargic then I don't like it so much."
Atletico added Spain striker Fernando Torres to their squad this month, the 30-year-old returning on loan to his boyhood club after stints at Liverpool, Chelsea and AC Milan.
Simeone said the extra competition for a place in the forward line was positive and he was confident Torres would make a useful contribution.
(Writing by Iain Rogers, editing by Ken Ferris)
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