Growth vs Product Spend: Where Should Your Money Go?
One of the most common capital allocation questions: should we hire a VP of Sales or fund more engineering? The answer isn't obvious—it depends on where you are in your journey.
You have $50K this month to allocate. You can either hire an engineer to build the requested feature, or hire a sales person to close deals faster. Which one is the right choice?
The real answer: "it depends." And that's frustrating because you need to decide now. But the framework is straightforward once you understand the math behind each decision.
The Core Tradeoff
Product spend improves your product (features customers want, better UX, scalability). Growth spend acquires customers faster (sales, marketing, partnerships). The question is: which creates more value per dollar?
The Decision Matrix
Here's the framework top founders use:
Question 1: Do You Have Product-Market Fit?
If NO: Allocate 70-80% to product, 20-30% to growth.
Why? Without PMF, growth spend is wasted. You're acquiring customers who'll churn. Product investment to achieve PMF is 10x more valuable.
If YES: Allocate 40-50% to product, 50-60% to growth.
Why? With PMF, growth spend has a predictable ROI. But don't starve product—customer feedback and competitive threats require ongoing investment.
Question 2: What's Your Customer Acquisition Math?
Calculate your CAC payback period. This is the number of months it takes for a customer to generate enough profit to pay back the cost of acquiring them.
CAC Payback = CAC / (Monthly Profit Per Customer)
Example: If CAC is $5K and monthly profit is $500/customer, payback is 10 months.
If payback is 6 months or less: Your growth spend is highly efficient. Spend more on growth.
If payback is 12+ months: Growth spend efficiency is unclear. Invest in product to improve margins or reduce CAC.
Question 3: What's Constraining Your Growth?
Is customer acquisition constrained by demand, or by your ability to close deals?
Demand-Constrained
You can close every inbound lead, and still don't have enough. Sales team is idle. Bottleneck is demand, not execution.
Decision: Invest in product and brand to create more demand.
Execution-Constrained
You have leads, but can't close them fast enough. Your sales process is broken, or pricing model is wrong. Bottleneck is execution, not demand.
Decision: Invest in sales/GTM to improve close rates.
When to Prioritize Product Spend
These scenarios favor heavy product investment:
- Feature parity: Competitors have features you're missing, and customers are churning because of it. Fix this first.
- Scalability issues: Your product falls over at scale, or has performance problems. Growth spend is pointless if you can't handle the customers.
- High churn: Customers are signing up but leaving quickly. This signals product issues, not go-to-market issues. Fix the product.
- Unclear value prop: Customers are confused about why they should use you. Spend on product clarity and differentiation, not acquisition.
- High CAC, low payback: You're spending heavily to acquire customers, but they don't stick around. Product work is more ROI-positive than more growth spend.
The Product Multiplier Effect
Every $1 you invest in product multiplies the return on future growth spend. Better product means lower CAC, higher retention, better word-of-mouth. It compounds.
When to Prioritize Growth Spend
These scenarios favor heavy growth investment:
- Product-market fit achieved: Customers love your product. You have clear demand. Bottleneck is acquiring more customers, not fixing the product.
- Repeatable unit economics: You've proven you can acquire a customer and make money. Growth is repeatable and predictable.
- Competitive threat: Competitors are scaling fast. You need to establish market presence quickly before they own the space.
- Time-sensitive opportunity: Market window is closing, or there's a major event coming (conference, partnership, news cycle). Speed matters.
- Strong product differentiation: You have a defensible moat. More customers means more data, which improves your competitive advantage further.
The Growth Multiplier
Growth spend compounds over time. Early customers create network effects, word-of-mouth, and brand. Later growth becomes more efficient because your reputation does work for you.
Common Mistakes
Mistake #1: Overweighting Growth Before PMF
You raise a Series A, hire a VP of Sales, and start acquiring customers. But the product isn't differentiated yet. You spend $2M acquiring customers with 40% annual churn. By year 2, you're out of money and out of growth. The classic mistake.
Mistake #2: Underweighting Growth When PMF is Achieved
You achieve PMF but stay lean on growth investment. Competitors scale faster. By the time you realize you should have spent more on growth earlier, they own the market. Now you're playing catch-up from behind.
Mistake #3: Ignoring Unit Economics
You spend heavily on growth because "growth is good." But your unit economics are terrible—CAC is 3x customer lifetime value. You can acquire customers, but you lose money on each one. This is how startups burn through capital.
Mistake #4: Treating Product as Finalized
You think you've achieved PMF, so you starve product development. But product development never stops. Competitors add features, customer needs evolve, technology changes. Under-investing in product post-PMF is how category leaders lose to challengers.
Quick Decision Framework
| Situation | Recommended Allocation |
|---|---|
| Pre-PMF / Searching | 70% Product / 30% Growth |
| Early PMF Signs | 60% Product / 40% Growth |
| Strong PMF, <6mo Payback | 45% Product / 55% Growth |
| Strong PMF, Scaling | 40% Product / 60% Growth |
How to Actually Decide
Forget about perfect analysis. Here's what to do this week:
Calculate Your CAC Payback
CAC / Monthly Profit Per Customer. This is your north star metric for growth efficiency.
Talk to 5 Customers
Ask: "What would make you happier with our product?" vs "How did you find us?" Inbound feedback signals which investment matters more.
Model the ROI for Each Dollar
"If we hire an engineer, what revenue impact in 6 months?" vs "If we hire a sales person, what revenue impact in 3 months?" Compare apples to apples.
Make the Call
Based on data, not gut feel. Allocate capital to the highest-expected-return investment.
Need help modeling growth vs product investment?
The best allocation decisions combine financial modeling with market intuition. At Eagle Rock CFO, we help founders stress-test their capital allocation assumptions and make more confident decisions.