Podcast S2E16: What Does it Cost to Grow? Do The Math
Steve Whittington breaks down the three ratios that reveal whether your revenue system funds growth or bleeds cash.
In part one of this two-part series, Steve Whittington, President of Roadmap, walks through the unit economics that sit underneath every revenue decision in a traditional B2B business. If you run a manufacturer, distributor, dealer, or professional services firm in the $5M–$55M range and set next year's targets by adding a percentage to last year's number, this episode is the reset. Steve calls that a "hope cast" — and shows you how to replace it with math.
In this episode:
- How to calculate your cost of growth ratio: total acquisition costs divided by gross margin, and why a result under 100% means your growth is funding itself
- The full customer acquisition cost formula, including sales salaries, commissions, CRM software, trade shows, and association memberships, most operators forget to count
- The customer acquisition cost payback period, and the 3:1 LTV to CAC benchmark that separates a sustainable growth model from an unsustainable one
- Why the cost of retention is almost always invisible in traditional B2B, and how to split shared costs like trade shows between acquisition and retention
- How to tier your book of business into strategic, growth, and transactional accounts, and why 20% of customers almost always drive 80% of revenue
- The expansion versus contraction ratio that forecasts where your book of business is heading before the year ends
Key takeaways:
- Cost of growth is a ratio, not a line item. Total acquisition costs divided by gross margin, times 100. Land under 100%, and your revenue factory is funding its own growth. Land over, and growth is cannibalizing the business.
- An LTV to CAC ratio under 3:1 signals something structurally broken in the revenue factory, usually high churn, acquisition costs that are too heavy, or average account sizes too small to carry the model.
- Cost of retention in traditional B2B almost always runs in the single digits or low double digits, dramatically lower than the cost of growth. When that number is low, it is often a sign you are under-resourcing account management and leaving expansion revenue on the table.
- Roughly 20% of customers drive 80% of revenue in nearly every book of business Steve has modelled. For a $15 to $20 million B2B, that often means the whole business rides on about 20 tier one and tier two accounts, and growth comes from retaining those and adding five more.
If you found this valuable, make sure to subscribe to Driving Growth wherever you get your podcasts for more strategies on building a scalable revenue engine. New episodes are available on the first and third Wednesday of each month.
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