J.D. Meier, quotes Thomas Gray who authored “Business Techniques for Growth”.
He makes a comparison of how much return you should be getting on various investments.
Here’s what he says:
3-4% return on an A-rated corporate bond; hardly any risk.
9-11% return on the S&P 500 stocks since 1900 (lots less since 2000, but more since 2009); some risk, but if you diversify and do not buy/sell on dips, you have a good chance of earning this return.
6.5% return on a portfolio that is weighted 50/50 for the above two investment types.
If investing in a Fortune 500 company earns you 10% return with much less risk than running your own business, your small company should generate a higher return due to higher risk. 20% is a good target. This is 20% annually on the cash and debt you used to start and run the business, not 20% on revenue.”
So basically, he is targeting 20% of your initial and on-going investment (not revenue), as a good target.
Does that seem reasonable to you?
And how does your company compare?
Food for thought.