Growth vs Profit Tradeoff
Models the tension between investing in growth and maintaining profitability. Identifies the balance point where growth spending optimizes long-term value, and compares multiple investment-to-profit ratio scenarios.
Executive - Growth Vs Profit Tradeoff.xlsx
Excel (.xlsx) — No macros — Works in Excel, Google Sheets, LibreOffice
What This Spreadsheet Solves
- Growth spending reduces current profit without a clear payoff model
- No framework for deciding how much profit to sacrifice for growth
- Board and investors disagree on the right growth vs profit balance
- The inflection point where growth investment stops yielding returns is unknown
- Scenario comparisons between aggressive and conservative growth paths do not exist
Who This Is For
- CEOs deciding on growth investment levels
- Board members evaluating management's growth strategy
- CFOs modeling profit impact of growth spending
- Investors assessing whether a company is over- or under-investing in growth
Inputs
- $Current Annual Revenue
- %Current Profit Margin
- $Growth Investment Amount
- %Expected Revenue Growth Rate from Investment
- #Time Horizon (Years)
Outputs
- Optimal growth investment as percentage of revenue
- Profit margin at each investment level
- Cumulative revenue over time horizon per scenario
- Cumulative profit over time horizon per scenario
- Balance point: investment level that maximizes total value
How Calculations Work
The model creates a range of growth investment levels and projects their impact over the time horizon. Higher investment increases the growth rate but reduces current-period profit. Revenue compounds at the growth rate each year. Profit equals revenue times margin minus the growth investment. The balance point is the investment level that maximizes cumulative profit over the full horizon. Diminishing returns are modeled: each additional dollar of growth spending produces a smaller incremental growth rate.
Example Use Case
Scenario: Current revenue: $5M. Profit margin: 18%. Growth investment options: $0 to $750K. Base growth rate: 8%. Each $250K investment adds 6% growth (diminishing). Horizon: 5 years.
Result: At $0 investment: 5-year cumulative revenue $29.3M, cumulative profit $5.3M. At $500K investment: growth rate 18.4%, cumulative revenue $39.8M, cumulative profit $4.9M (lower margin but higher absolute). At $750K: growth 21%, revenue $42.1M, profit $4.1M. Balance point: $400K investment maximizes 5-year total value (revenue + profit) at $37.2M revenue and $5.1M profit.
What You Get — 5 Sheets
Technical Details
Frequently Asked Questions
How do I estimate the growth rate from investment?
Use historical data: when you spent X on marketing/sales/R&D last year, what was the revenue growth? If no history exists, use industry benchmarks for CAC and expected customer lifetime value to estimate incremental revenue per dollar spent.
Why does the model use diminishing returns?
Each additional dollar of growth spending typically yields less incremental growth. The first hires, campaigns, or markets are the most productive. Diminishing returns prevent the model from unrealistically recommending infinite spending.
What time horizon should I use?
Match your strategic planning cycle. SaaS businesses often use 3-5 years. Capital-intensive businesses may need 7-10 years. Shorter horizons favor profitability; longer horizons favor growth investment.
Does this account for the cost of capital?
Enable the discount rate in CONFIG to convert future values to present values. This is important when growth investments have delayed payoffs: the discount rate ensures future profits are not overweighted.
How do I present this to the board?
Show the balance point analysis and 2-3 scenarios (conservative, balanced, aggressive). Highlight the trade-off: exact profit sacrificed now vs exact revenue and profit gained over the horizon. Let the board choose the risk appetite.
Download Growth vs Profit Tradeoff
Ready to use immediately. Enter your data in the INPUT sheet, see results in OUTPUT.