Balancing Growth and Profitability Goals

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Mark Oswego

December 30, 2021

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You'll find a lot of people offering advice when you strike out on your own and start a business. You'll also find that sometimes that advice proves conflicting. One person will tell you that the key to keeping your company going is doing whatever it takes to minimize expenses and keep the company profitable. The next will tell you that growth is the key to a valuable enterprise. The advice may seem contradictory, but both viewpoints are correct. The key is to find the point where your growth and profitability goals balance. Here's how.

Build a Buffer

Saving Account books and money

Growth adds expenses, which means profitability can temporarily take a dip. When growth strategies are well planned and implemented, these increased expenses should only impact profitability temporarily. Still, you'll need to prepare. The best way to do so is to make sure you have enough cash in the bank to cover your business expenses for at least 6 months. Twelve is even better.

Start Small

When it is time to expand, remember that growth doesn't have to happen in leaps and bounds. While there is nothing wrong with pursuing large growth opportunities when you can do so, slow and steady growth is still growth. Sometimes the best way to get prospects is by starting with existing clients.

If you're looking to grow with as few growing pains as possible, consider starting a referral program for your existing customers. You can also implement quantity discounts and frequent shopper perks while training your sales staff to upsell and cross-sell. It costs a lot less to focus on the customers you already have than it does to try and gain new ones. Obviously, you'll need more clients at some point, but focusing on existing clients and referrals from them can help you prevent a total growth stagnation during times when you need to focus on profitability.

Draft a Scalability Plan

Growth matters, but far too many entrepreneurs try to run before they can walk. You need to make sure your growth and profitability goals balance. You also need to make sure your growth and ability to deliver balance. An order for 6,000 widgets may sound like a dream come true for your small start-up. But what if you only have the capital to buy enough raw materials to make 600?

A growth plan can help you avoid problems like this one. Take the time to analyze not just how much more business you're aiming for but how you intend to support those customers. You need to have the finances, personnel, and systems in place to support your increased business activities. This could mean more delivery vehicles, faster manufacturing equipment, or more telephone lines. Taking the time to address both the cost and logistics of scalability will help you make sure you don't grow your business to death.

Don't Skimp on Marketing

Marketing Plan - Context, content, social media and storytelling

Watching your expenses closely is one way to help with profitability, but marketing is not an area where you want to cut corners. A solid and cohesive marketing plan is one of the best things you can do for both the growth and profitability of your business. It can seem costly to work with professional marketers, but they can help you identify your target audience and get your name in front of them. They can also help you design a professional website, blog, and social media campaign.

You should spend a few advertising dollars, but don't spend them carelessly. Work with a reputable firm willing to show you the metrics and help you figure out what works and what doesn't. They should also help you change the things that don't work, of course. A good marketing strategy can get you both profits and continued growth at a sustainable rate.

The Rule of 45

45% growth chart

Business advice blogs and books on entrepreneurship are often heavy on buzzwords like "creating synergy" and "bleeding edge" but light on actionable advice. You'll be glad to know that when it comes to striking the right growth and profitability goals balance, there is some actionable advice to be had. According to an experienced Wall Street insider, in companies with high market valuations, the annual growth rate plus the profit margin exceed 45 percent.

When your company is growing slowly but has a profit margin of 45 percent, Wall Street would rate you as doing quite well despite your slow growth rate. If you're growing at a rate of 45 percent per year, you can break even or function at reduced profitability but Wall Street would still rate you as doing quite well.

If you need help balancing your growth and profitability goals, remember that e-Marketing Associates is here to help. Whether you need help with reputation management to make sure potential customers know they can trust you or if you need help with new lead generation, we're here for you. We know what it's like to walk the line between profitability and growth and offer a wide array of services that can help you achieve both.

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