Investing in your business is vital for a thriving company. But often, business leaders wonder, how much? The idea of how to grow your business spending is always a tricky question. That's because your company trajectory is essential, but it's different than that of other companies. In other words, the years in business, market demand, product lines, industry, etc.—all play into the considerations.
However, while nothing's cut in stone, general approaches and accepted principles exist. For instance, if you want to figure out how to grow your business spending, there's a good rule of thumb to use. It’s to spend 40% of the revenue growth you want to achieve in the next year in the current year. At a minimum, you should spend 10% of your revenue goal on revenue development in any given fiscal year.
So, let’s say you want to increase revenue by $1 million in 2023. In that case, you need to budget $400,000 in growth spending for 2022.
Problem: Business leaders know they must invest and avoid business growth strategy mistakes. But, it isn't always easy to understand how much and what to consider.
Opportunity: Although companies operate in a dynamic environment, c-suite executives could rely on general approaches to investment.
Resolution: Knowing five considerations for company growth eliminates uninformed spending. Further, it serves as a guide for growing a thriving national or global business.
So, let’s explore five considerations for how to grow your business spending. Doing so serves as a framework for thinking through investment capital.
1. Not Every Company Will Invest the Same Amount in the Same Ways
Every company has different needs. Still, it's crucial to spend a percentage of the revenue you want to grow in the current year. If your business has many fixed costs, like rent, you may need to increase your spending accordingly. Likewise, if your company has lower fixed costs and relies on variable expenses, you would likely have higher revenue growth with less annual spending. Lower fixed costs allow them to increase their variable spending and expand their global digital footprints.
That said, it’s sometimes difficult for businesses to forecast growth accurately. It can be hard to predict how much revenue growth you want or expect for the following year. And that's especially true in a continuously morphing business environment. However, it’s helpful to set a benchmark. It's simply impossible to create sustainable business growth without a framework. Therefore, it’s vital to make the best forecasts for your particular business—not someone else's.
Also, executives need to remember growth doesn’t happen overnight. It takes time and patience. Moreover, that could be especially tough in our modern business environment. It seems like incrementalism has gone out the window. It could seem like a failure not to attain massive growth—immediately. However, if you make incremental investments, it stands to reason company growth could take longer. But, that doesn't have to be a bad thing. It could be a strategic decision.
2. Allocating Time, People, and Money to Growth
When considering how to grow business spending, it’s vital to allocate time, people, and money to growth initiatives. These are essential spends. In short, they validate whether you simply like the idea of growth or whether you truly believe that growth is achievable. But the reality is you can't just throw money at allocations without planning for the results. And that means that every decision made regarding the spending of time, people, and money is crucial.
Moreover, planning for the results is also vital for velocity growth. Doing so helps you know if it's worth spending time on a project or if you should shift your focus to something else. It might not be worth it to put resources into a project that won’t have a big impact on revenue growth in the next year. So, considering the allocation of people, money, or time forces executives to make tough decisions. In the process, it provides clarity for the direction you want to take the company as it grows.
3. The Greatest Risk is the First 90 Days
The most significant capital investment risk for growth is the first 90 days. Those 90 days set the groundwork and frames success (or failure) in the future. If you create a strong foundation during this critical time, you'll weather any storm that comes your way. It's typically a good idea to invest by spending more during these initial months and getting solid results sooner rather than later. If you have early success, it builds momentum to keep going.
That said, as a business leader, you know the risks of investing in the business. Sometimes it could feel like a gamble—especially for a new project or initiative. And even if you do the due diligence, it can still be hard to predict how your business or an initiative will do. Again, the first 90 days are the leading indicators for new efforts. And that's why they deserve special attention. Therefore, always prepare your team to relentlessly evaluate performance during the first three months.
4. Focus on Leading Indicators, Not Lagging Indicators for Business Growth
Lagging indicators measure a company's performance over a long period. You can also call them trend indicators to help you predict future performance. Lagging indicators show how well a company does compared to its past performance. The most common lagging indicators include revenue and profit margins. Leading indicators gauge how the business is doing at any given moment. Some leading indicators include orders, inventory, and new clients. Paying attention to leading indicators is vital for growth and spending.
As consideration for how to grow your business spending, you must focus on leading rather than lagging indicators. By doing so, you seek to predict future performance. In general, leading indicators provide better information about what's happening in the present moment than lagging indicators. Leading indicators also help you identify problems with your business before it's too late. For instance, leading indicators can indicate a problem with inventory levels. Or the data may show too many outstanding orders to fill before the end of the quarter.
5. There are No Shortcuts to Growth, So Adjust as New Data is Available
No matter how much you want to grow the business, there are no shortcuts. When you think of how to grow business spending, it’s a marathon—not a sprint. The key to growth is to make timely adjustments as new data becomes available. As the saying goes, you don't know what you don't know. So it's essential to set realistic goals, undergo and ensure a successful digital transformation, and relentlessly monitor progress.
Just as no two businesses are alike, no companies have the same growth timeline or path. Data changes daily, so you have to adjust accordingly. As long as you adjust as data is available and don't blindly follow an inflexible strategy, the company will achieve its goals over time. But, you need to adjust your plan as the data changes to grow the business. If you want the company to grow, you need to master the pivot as the data changes. Unfortunately, inflexibility is one of the critical mistakes business leaders make. As the swift changes due to the pandemic demonstrated, new data and information requires thinking elasticity.
The Multi-Layered Process for Business Growth
Achieving business growth is a multi-layered process. For growing national and global brands, the burden of growth is even more significant. Growth is not an event; it’s an investment in the company's future. You may have to make some tough decisions to invest in time and money, but this is the path to success. As you know, if you want to grow your business, no shortcuts exist.
Ben Stroup is Chief Growth Architect and President at Velocity Strategy Solutions where he helps leaders design, develop, and deploy smarter business growth strategies. Ben is a futurist, disruptor, and data champion. He leads a team that takes a structured learning approach to business challenges, which allows them to assist leaders in bridging the gap between ideas, innovation, and revenue—taking ideas from mind to market.
Velocity Strategy Solutions is an on-demand, next-generation business strategy and management consulting firm which provides clients with a relentless focus on data, execution, and results that positively impact the bottom line. Velocity delivers integrated people and revenue strategies combined with a disciplined approach to growth architecture that elevates the capacity of leaders, teams, and organizations to succeed and win more.