I often get asked to contribute to blog post roundups and try to help whenever I can. Most want my one best idea. The illusion that there is one best idea by 50 people is a mini-paradox. By definition, it is acknowledging business and life is not simply about picking one thing. A collection ought to be different ideas. My default, when asked, is to answer with a view that takes a look at the bigger picture and where to start. I’ve watched how we tend to get going before deciding what outcome we want. and I advise a better way. Here’s the answer I shared.

“What’s your best tip for growing/scaling your business?”

I know a business is ready to scale when the owner stops saying “we need more sales” and starts talking about the numbers that make sales happen. We call that an ROI formula.

Optimize ROI to Optimize Growth

Most small businesses use the term “return on investment” as a catch-all for anything that makes money. I prefer to use an investor’s definition and calculates the NET PROFIT from money invested.

Calculating ROI

Analyze any potential investment by adding up ALL the costs, the cash, resources and labor. Even if going to do some of the labor yourself, estimate the costs as if you were going to pay someone. Not accounting for your own labor value will keep you small because you cannot scale your own time. Speaking of time, an investment must return enough to cover all costs in a specific amount of time. In finance, you’d call that the Interest Rate earned on investment. Let’s say you invest $500 in marketing that brings in $5,000 in sales. Subtract any fulfillment costs for that sale (inventory, labor, etc), let’s say $1,500. That leaves $3500, minus the initial $500 for a Gross Profit of $3,000 to apply towards paying the rent and other fixed expenses. Spending $500 to net $3,000 with a repeatable process can make you rich… IF you can do that in a reasonable amount of time. If it takes a year, to get the money back, you’ll be broke before you the year is out. If you could do it in a day, you can invest that $500 and have $15,000 by the end of a week. Calculate an estimate of ROI on any growth opportunity. Optimize by repeating the winners and scaling.