How Much Should You Invest In Your Business?

If you're a solo professional running your own service-based business-such as a coach, consultant or other "expert"-you may wonder how much money you should invest each year in activities to grow yourself and your business. How much should you spend on activities such as marketing, and professional or personal development?

It's tough to find an answer to that question.

Traditional marketing guidelines used to suggest that a service-based business ought to invest between 5% and 10% of its annual revenue in marketing. That means if your annual gross revenue is $100,000 you would invest somewhere between $5000 and $10,000 per year in marketing.

As a solo-professional in today's online business world you're likely encouraged to spend a lot more than that. Particularly when you factor in money spent on personal or professional development. That might include coaching, mastermind groups, courses, seminars, conferences, and information products... all marketed as necessary things to grow yourself and your business.

Back when I worked in a corporate job, we had a Professional Development budget.

Each year, management level employees had a set amount of money that could be spent on conferences to continue their education and gain knowledge to help them do their job better. The amount varied depending on the company I worked for, but it was rarely more than enough to cover one conference per year.

As a solo-professional today, you're likely inundated every single day with invitations to spend money on coaches, conferences, products and services to grow your business and yourself. The question is, have you set a budget based on how much money your business makes, or how much you project to make, to invest in these opportunities? Or, are you just winging it, and investing in whatever comes your way that sounds good?

The latter is a dangerous proposition.

As I have shared quite openly in my book, I allowed my spending on marketing and personal/professional development to get out of hand. And, it turned a long-time profitable business into an unprofitable one, very quickly.

It's interesting to look back at what I invested in marketing and development and the impact it had on my business. Had I set an annual marketing and development budget for myself, I very likely would have avoided getting so caught up, and ultimately running my business into the ground.

Here's what the spending that did my business in, looked like.

Prior to 2006 I consistently spent less than 10% of my gross revenue on marketing and development. The majority of my business came from referrals and word-of-mouth, my expenses were extremely low, and my business was highly profitable.

Then I got involved in personal development and internet marketing, so I could reach more people and make more money.

From 2006 through 2008, I spent between 30% and 40% of gross revenue on marketing and development, and while my business made a decent profit each of those years, that profit did not grow significantly year over year. In 2009, I invested a whopping 69% of my gross revenue in marketing and development and interestingly, my business revenue dropped by 53% that year.

It doesn't appear all that investing was doing what it was supposed to be doing: growing me and growing my business.

It's embarrassing to look at, and share, those numbers.

I mean who spends nearly 70% of revenue to grow a business? It's insane. And I swear, I am not insane! What I was, was spellbound. Believing what I was being taught... that I needed to keep investing more to keep earning more. History should have told me otherwise, but when you're under a spell, you don't see things clearly.

I can tell you I was not alone.

I know of many other people who invested money they didn't even have, much less a large percentage of the revenue they were making. Sadly, I saw this spending encouraged by the success "experts" far too often.

The truth is my business was more successful and more profitable before I invested so much of my revenue into personal and professional growth.

I'm not saying that we shouldn't invest anything in ourselves or our businesses. What I am saying is I think as solo professionals we need to act more like real business owners and budget a reasonable amount to invest in growth. By doing so we force ourselves to seriously consider and evaluate what we're spending our money on, we ensure that we'll be making well-thought-out spending decisions and not just emotional ones, and we can ensure the continued profitability of our businesses.

My question for you is, have you allocated budgets for marketing and development, or are you just winging it? Are you tracking your gross revenue and your business' profitability? Are you getting a return on investment (ROI) for all that you are spending on marketing and development?

As a business owner, you owe it to yourself and your business to track the numbers. I made the mistake of not monitoring my numbers closely enough. And, I paid the price. And I know for a fact I am not the only one.

Take care of business and your business will take care of you.