Here’s a simple thought for you – businesses that reinvest their profits grow the ones that don’t plateau.

Most businesses, especially service business flat line because they don’t know where to reinvest their profits. In the worst case scenario business owners pull ALL of their profits (and maybe a bit extra) and they KILL their business.

On the flip side, business that are forced to reinvest (inventory, equipment, etc) have better or at least more predictable growth. Manufacturing companies for example have obvious reinvestment – better equipment, more capacity, etc.

But when you’re a service business, like bookkeeping you are selling expertise and time, the reinvestment becomes less clear.

So owners pocket the profit and wonder why growth stalls.

Here’s the truth:

Your objective is to reinvest in whatever gets you the highest return.

For most businesses, that’s the business itself. But service businesses have two specific places that extra profit can and should go.

Marketing, Continuing Education & Motivation

Marketing gives you pricing power and retention. When you’re known in your market, you can charge 2-3x more than competitors. That future pricing power and retention turn into future profits that compound.

Continuing to educate yourself keeps that fire going. Remember the first day of school. Nothing quite as exciting as new school supplies, and cracking open that textbook for the first time. Our brains thrive on new challenges and new information.

The math is simple:

A $2M service business that reinvests 30% of profits into marketing and talent for 3 years will outperform the one that pockets the profit every single time.

One builds big picture value.

The other builds a higher-paying job.

Here are 2 very real client specific examples: Bookkeeping firm owner making $75k profit.

Option 1: Pay expenses and take it all home.

Option 2: Establish a reasonable salary, pay expenses and invest $25k in brand building and coaching.

With Option 1 by year three, the first owner still makes a profit of $75k or less because they become disillusioned or bored with their business.

With Option 2 the owner is able to grow their salary a reasonable amount from year to year and has doubled their profits.