Not Reinvesting Your Profits Is Killing Your Business
Updated: Jun 22, 2019
Here’s what the top 1% understands that you don’t: reinvesting your profits back into the business is the key to success.
But let’s face it, the most entrepreneurs out there just don’t reinvest enough. They have a great few months and pocket 50–75% of the revenue. They think: that’s profit, right?
They aren’t looking six months or a year down the road and so don’t understand how benefits of reinvesting compound over time.
And it’s killing their business.
They are starving their business of the resources it needs to grow. So they fail.
Building your business is a craft, similar to mastering a video game or perfecting a free throw. It takes sweat, dedication, and relentless practice. You may put down the controller or leave the gym, but the rest of the world keeps playing.
While you’re sleeping, many others are tirelessly perfecting their craft. They are working day and night, honing their skills, and widening their advantage.
Some of them are your competitors.
When you wake up the next morning, these competitors will be farther ahead of you.
Reinvesting into your business helps gives you the edge.
What’s A Good Reinvestment Strategy?
If you are just starting out, reinvest as much as you can. And anchor all your investments to your business mission and goals.
Really — the longer you can make your money last, the higher the chance your business will survive and thrive.
But reinvestment is more than putting a set percentage back into your business. It’s a strategy.
Successful small business owners understand that they have to make sacrifices to grows.
There’s not enough money or resources to invest in your product development, your marketing channels, your team, your tech systems, and quality assurance…all at the same time. We have to make tough choices.
It doesn’t mean the others aren’t important. It means we can’t get to it yet. But if we don’t pivot back and invest into those other areas, these deficiencies can be fatal.
So when profits start rolling in, here are 5 areas where reinvesting brings huge return on investment (ROI):
1. Marketing. Marketing. Marketing.
If you’re just starting out, the primary marketing goal is getting your message to your target customers using the right medium. That means getting creatives (the visuals, like photos and videos), copy (your written message), your marketing channel, and your target audience right. Reinvesting here can speed up that process.
But only having one marketing channel can leave you vulnerable. So if you’ve nailed down one marketing channel, double down on marketing spend for that channel, while at the same time, spend 20–25% of the marketing budget to testing new channels.
For example, if you’ve got a consistent return on Facebook or Instagram, and you’re spending $1,000/month in ads, consider doubling that budget to $2,000, and at the same time set aside $500–20% of your overall $2500 monthly marketing budget — on testing and honing say Google ads.
2. Improve Your Offering:
In my 16 years as a business coach, I’ve met many entrepreneurs that build a product or service that was developed only in their own head. It’s stunning — they create, build, and launch an offering without ever testing to see if the market even wants it.
They were solving their own problem and never asked the market if that problem was theirs too. And when they launch their offering, no one buys.
Don’t be that person. Listen to what your target customer tells you and reinvest into continually refine your offerings. When your offering solves your target customers need, your business wins, both in its mission and on the bottom line.
Upgrading the customer experience also goes a long way. Maybe you duct taped a scrappy website for the product launch, and now you can redesign it to handle the traffic and improve the experience.
Perhaps you’ve opened a café and now you can invest in new couches, or bring in live music every Friday, or expand next door to fill the new demand.
Your customers’ needs will change over time, and reinvesting helps change your offerings and your experience to meet those new needs.
It’s almost impossible to grow your business without systematization.
At the beginning, our sleepless nights and our hustle are key reasons our business survived. If we aren’t careful, those same qualities become the critical reason it’s going to fail.
As we grow our business, certain skills and processes are necessary to get you to 6-figures.
But going from 6- to 7- and 8-figures requires a different approach.
And most entrepreneurs don’t make the switch. They are so focused on bringing in clients, they hadn’t prepared for what would happen when they got them.
Instead of working to remove themselves as the bottleneck, automating systems and processes, and delegating…they double their coffee intake, and doubled down on control of the business.
I call it the hug of death.
Reinvesting to create systems and process help free you and your team from many of the tedious tasks that can be automated or delegated.
For example, you can invest in systems that automate monthly ordering, or customer scheduling, or a client onboarding process.
And you can delegate certain tasks like marketing or tech support to contractors.
The more you can systematize and automate and delegate tasks that don’t require your daily time and energy, you can free yourself up to focusing on more strategic areas of your business.
4. Reinvest In Your Team
No business investment is more important than investing in your team. Your business is better set up to grow when your team has better training, access to the resources they need, and great cohesion and trust in the group.
You can invest in programs like: finding a working space that fits your new team; upgrading your business equipment; improving communication tools; offering a better health care insurance program; or having regular group training.
Delegating lower level tasks also helps the team dynamic because it allows members to return to their intended roles that play on their strengths.
5. Invest In YOU
Let’s face it: leading a small business is tough. Ever-complex challenges hit us from all sides, it keeps us up at night, and if unchecked, it drives us to work harder and longer. We stop doing the things that bring us balance, like working out or meditating, we stop making time for family and loved ones, and many of us burn out.
Our health suffers, our relationships suffer, and our business suffers.
That’s why investing in YOU is so important.
Think about how your life and your business can transform if you invest in a business coach that can help you become a more effective leader so you can build smarter and better anticipate and overcome the challenges your business faces.
Think about how investing in you can make everyone around you better.
Reinvestment is the most important way you can convert your profits into real growth. Keep your eye on your long-term business goals, be strategic and consistent, and soon you’ll start seeing real results.