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We analyzed the ten tech companies worth over a billion dollars that went public in 2014 and 2015, and the average company spent a jaw-dropping $0.72 on sales and marketing for every $1.00 of sales during the three-year hypergrowth period before going public. As a matter of fact, one of the companies, Box, spent $1.59 for every $1.00 in sales! You’re probably wondering, how does a company like Box justify spending more money on sales and marketing than they generate in sales? The answer is “customer lifetime value.” Once Box mathematically proved that they could acquire a customer for less than the lifetime value (LTV) of that customer, they raised a war chest of investment capital and didn’t care if they spent more on sales and marketing than they generated in annual sales, because they knew that they would generate a big return in the long run. You probably don’t have access to a massive war chest of investment capital, but that doesn’t mean you are unable to invest more resources on growth. Instead of benchmarking your growth investment against customer lifetime value, benchmark against your bottom-line profits. Here is a list of financial scenarios and corresponding actions: If you desire growth and have a profitable business, operate at a break-even point and reinvest the profit, or a portion of the profit, back into growth. If you are running a break-even or unprofitable business, spend some time going through your expenditures looking for redundancies or unnecessary expenses. If you cannot find any opportunities to save money, prepare yourself to take a temporary pay cut (you can time this around your tax refund or right after your busy period if your business has seasonality). If you are unable to take a temporary pay cut, prepare yourself to work some extra hours (start by batching activities so you can spend a day per week working from home, and use the time you save when not having a work commute to invest in growth). If you are unable to take a temporary pay cut AND unable to work any extra hours, then read the paragraph below.
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