Question # 7: How much should I spend on growing my business?
Rule of Thumb: Every dollar spent on growth must produce 5 dollars in revenue. It's called the 5X rule. Successful, growing businesses make 5 times what they spend on marketing, advertising, sales or any other growth channel. Here's how it works: You want to grow your company by $100,000 Top Line Revenue. You could spend UP TO $20,000 in Marketing and Sales.
In my practice, I recommend to my clients that the $100,000 growth be AFTER cost of goods sold (COGS). Then the $100,000 is TRUE growth.
This is where knowing your numbers is important. How much (if at all) do you spend on COGS? Say you spend 20% on COGS (in general). If you want to have $100,000 REAL Growth, you have to make $120,000 in Top Line Revenue. Now you apply the 5X principle. Your $24,000 of Marketing & Sales must generate $120,000 growth. COGS is required for you to make the $100,000 in growth too.