Growth vs. profit

maybe I think to simple, but just because revenue is high doesn't mean you are growing I would only assume that I am growing if profits are up. why the fuck would you spend money on "growth" that loses you money? The more profits you make should be invested in wise business choices not on random shit that increases your revenue. . . that's just bad business.
 


jonas33h said:
maybe I think to simple, but just because revenue is high doesn't mean you are growing I would only assume that I am growing if profits are up. why the fuck would you spend money on "growth" that loses you money? The more profits you make should be invested in wise business choices not on random shit that increases your revenue. . . that's just bad business.
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Depends on the LTV of the user/customer, you don't need to recoup the entirety of the user acquisition cost on the first or second visit if you have a sticky asset like a forum that keeps revenue generating users coming back over and over again (like in OP's case).
 
Put it this way, you don't want negative growth or negative cash flow because both of those are like a cancer slowly killing you.
 
I would go for profit until you break even... then start growing again... once you get out of your comfort zone again, stop growing and profit until you're comfortable again, start growing again... repeat :rasta:
 
cardine said:
Based on everything you said here (the business you have, where you are now, where you want to be later in life) I would say absolutely keep spending for growth.

It seems like you answered your own question. You have enough money to comfortably run at a loss to grow your business, you have high ambitions and you have direction to help you reach your goals. Unless you are leaving something out, there is no reason not to go all out here for as long as you keep getting those types of growth numbers.
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This. I'm no MBA type and this is purely coming out of my ass, but I'd just be sure that your expenses aren't "diverging" away from revenue growth.

As in, every extra 10k spent now only makes you $500/month residual, but you want a 12 month ROI... no good (IMHO) - You're divergent.

Other than that, keep going big. At some point, you might tap out your advertising market too... so watch out for the law of diminishing returns.

Subscribed here. Congrats on your success... 10 years of grinding. Fuck yeah.
 
Check out kraig kramers site... Dude has a lot of good reads on business and running a company at a high level... CEO Tools: The Manager's Workshop
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Thanks. I'll check it out.

As in, every extra 10k spent now only makes you $500/month residual, but you want a 12 month ROI... no good (IMHO) - You're divergent.
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That's a good way to think about it. What I do now is take total sunk costs to date, minus total revenue to date. That gives me total net loss to date. Then, I take 90% of my current monthly revenue and see how much time it would take me to recover my net loss to date.

My advertising expenses this year total up to $395k.
With revenue $230k.
So I lost $165k.

If I can maintain 90% of my current revenue, which is $48k/mo (by either spending 10% on maintaining revenue or by spending 0 and losing some revenue), then I'm looking at $43k/mo in operating profit.

It means, it would take me a bit under four months to recover what I spent, if I decide to stop now and accept slow/no growth for the sake of pulling cash out.

Shit. The more I think about it, the more calm I become about this whole thing.

Other than that, keep going big. At some point, you might tap out your advertising market too... so watch out for the law of diminishing returns.
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It's surprising how much money can be had from even the tiniest of niches. But I agree, there might come a time when the niche is tapped out. I just think I'll exit before I hit the ceiling.
 
Just wondering about your avatar: Is that a guy shoving a huge black dildo into a chick's mouth?
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Why yes, it is :)
 
Unless you are leaving something out, there is no reason not to go all out here for as long as you keep getting those types of growth numbers.
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My fear is not that I'm leaving something out, but that I'm missing something obvious.

One thing I can think of is seasonal advertising prices.

I'm sure that because the holiday season is approaching, I'm making more off of my ad inventory than I would otherwise. But I'm not sure by how much more.

I don't have any past history, since this is a new project, younger than a year. And on top of that, this project is growing. So I don't even have a way of estimating what percentage of my current revenue would go away in January based on the previous few months.

There is probably more I'm not seeing.
 
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OP, I love your theory on life and business, very similar to my own.

As to your problem, here is my take on it. Your ambitions are high. You don't want to merely settle for a site making 20k or 30k in profit a month, you want to exit when you valuation is at its highest. If that's the case, then any advertising expenses you have now will be paid back to you plus more when you exit for 2 or 3 times annual revenue. I highly recommend you read a book called "Early Exits" by Basil Paters.
 
what's your customer lifetime value? if your lifetime value is greater than your cost of acquisition, you can afford to burn more than you profit during a growth phase so long as you don't actually put yourself out of business.

That's exactly why profitable companies (like Dropbox, for instance) have to take on VC even though they're growing and profitable. If you're on a recurring model, it might require a few months to make back your acquisition cost you paid, but in the long term you're profitable based on your lifetime value.
 
Spending money on growth is all well and good, given that the revenue achieved won't decrease or stop due to unforeseen circumstances. Always do your best to find the worst-case scenarios and ask yourself "would I be able to manage if this happened to me".

A few points off the top that may or may not be obvious:

  • Don't forget to include tax expenses in your profit calculations.
  • Do a thorough analysis to determine the market size and potential. Growth and money isn't unlimited.
  • Pay attention to macro-economic factors affecting your market, such as recessionary changes in spending habits.
  • Would changes/advancements in technology affect your ability to monetize?
If you end up being worried about the risk yet still want more growth, see if there's any other ways you can leverage your assets (forum) to obtain additional marketing and exposure without substantially hurting your revenues. Temporary alliances with product developers or service providers in your niche could be extremely beneficial for both parties involved. I'm not sure how you are currently monetizing the forum, but whether promoting a product, selling ad space, etc. always ask yourself whether there's anything ELSE that business can provide you with other than ONLY cash. Keep in mind that you will always get a much better value if you include that businesses already present assets or specialty as part of their payment to you, because they will always be willing to provide you with more of that, then they would of just straight cash. Leverage the market exposure of the big players in your niche.
 
Many of the points you originally asked have been addressed, but I thought I'd add a few more.

The single biggest issue that I see you having is liquidity. The numbers you've thrown up are irrelevant - it just depends on your cash reserves and whether or not you can sustain the loss.

Imagine you had dropped 4 decimal places off of this and asked the question. Instead of ~300K in expense you had $30 dollars but were growing. Everyone here would say keep growing it until it's profitable as long as you can afford it.

One more thing - if you're building this with the eventual goal of selling it take a day or three and write a real, solid business plan projecting the losses, the eventual break even point, and the expected future profits. Update this a couple times a year.

That way if you do ever sell it - even if it is still losing money - you can say "Here's the plan, the plan is working as expected, and it will be profitable on XYZ date".

The above is also useful if you need financial services (banking, line of business credit). A bank that sees you have a plan will lend you money. I base that one on experience - I once borrowed $125K in cash and secured a $350,000 LOC after having a year where we lost just over $400K.

Edit:
Also - the above poster makes a good point - make sure you understand the tax ramifications of the losses you are taking. Frequently you will be forced to spread these across 3-5 years and not just take it all in one year. It feels a lot like rape but is less enjoyable.
 
Yaxxx said:
WAT?

I've seen your posts around and always thought it was some sort of MMA/Wrestling img, never really looked at it closely lol.
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Enjoy :)

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I highly recommend you read a book called "Early Exits" by Basil Paters.
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Thanks. I'm checking out his website and videos right now. Amazing stuff.
 
There is no way I am going to make loss for one year. I would look to balance the whole system some where. Profit is god.
 
dude91 said:
There is no way I am going to make loss for one year. I would look to balance the whole system some where. Profit is god.
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Well the OP's case shows that at the end of the year, his business will be a lot more profitable if he pushes for growth and loses money for a while.

Facebook lots shitloads for years, so did Amazon, the numbers are bigger and timeframes longer but seems to be the same principle.
 
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