Cash & capital

The re-investment rate: buying growth with your own gross profit

By Assaf Schwartz · 10 September 2026 · 9 min read

Every dollar of operating profit is a fork. Keep it and the balance sheet gets stronger; spend it on acquisition and next month's revenue gets bigger. The Re-investment rate control sets the split, and it is the one input in the model that makes the five-year revenue number and the five-year cash number move in opposite directions. Which way you should lean is not a matter of taste — it is decided by your acquisition payback and your churn.

What the control does

Mechanically the rule is short. In any month where operating profit is positive, the engine takes the share you have set on the Re-investment rate control and spends it on paid acquisition. That spend converts one month later at your blended CAC and arrives as recurring revenue at your ARPA:

paid new MRR = (acquisition spend ÷ CAC) × ARPA

Three properties of that rule matter more than they look.

• It only spends profit you already have. While operating profit is negative the rate does nothing whatsoever. Move it from 0% to 90% on a business that never reaches break-even and not one figure in the projection changes. This is not a growth lever for a loss-making company; it is an allocation policy for a profitable one.
• The revenue it buys is permanent, subject to churn. A dollar spent this month buys MRR that then compounds with organic growth and decays with churn, exactly like the rest of the base. That is what makes the effect non-linear over sixty months.
• The cost is immediate and the return is not. At the defaults, each dollar of acquisition spend returns 11.7 cents of MRR per month, or 9.1 cents of gross profit — which is another way of writing the 11-month CAC payback the simulator reports.

Because the mechanism is pure arithmetic, the whole question becomes: does the spend repay inside the window you care about, and can the cash curve absorb it while it does?

One month, traced

Take the defaults, which run the control at 30%, and open month 36. Operating profit that month is $15,377. The engine routes $4,613 of it into acquisition, leaving $10,764 to reach the bank.

At a CAC of $3,600 that buys 1.28 accounts, and at an ARPA of $420 they show up in month 37 as $538 of new MRR — on top of the $7,493 the organic growth rate contributes. It is a small number. Repeated for three years while the base compounds underneath it, it is not.

Sweeping the rate

Hold every other default fixed and move only the rate. Operating break-even stays put at month 24 in every row, and the cash trough of $526,346 in month 23 is identical in every row too, for the reason given above: there is nothing to re-invest until break-even arrives.

Read the second and third columns together. Going from 0% to 75% adds $2.1M of year-5 ARR and costs $294,728 of ending cash and 8 months of cumulative payback. Whether that is a good trade depends on what you think a dollar of recurring revenue is worth relative to a dollar in the bank — at any sane revenue multiple, it is an easy yes.

The genuinely interesting row is the second. At 15% the projection ends with $1,325,769, which is $1,057 more than spending nothing. Below a certain rate the revenue bought early enough repays itself inside the horizon and contributes cash of its own. That crossover exists only because acquisition payback here is under a year; push CAC up and it disappears entirely.

When more is worse

Change one input — raise CAC to $9,000, leaving ARPA, churn and the cost base alone — and the same sweep tells the opposite story. LTV:CAC falls from 3.3x to 1.3x and acquisition payback stretches from 11 months to 27.5 months. Nothing else about the business changes.

At 75% the expensive version buys $496.1K of extra ARR for $518,398 of ending cash. The cheap version bought $2.1M for $294,728. Per dollar of cash surrendered that is $7.28 of ARR against $0.96 — same control, same rate, 7.6 times the return.

The mechanism is the horizon. With a 27.5-month acquisition payback, every dollar spent after roughly month 33 has no chance of returning inside the five years, and the rate spends most heavily in exactly the late months when profit is largest. High re-investment against slow payback is a machine for converting cash into revenue you will not be paid for until after the plan ends.

Churn decides what you keep

CAC sets what the revenue costs. Churn sets how long you keep it, and therefore how much of it is still there in year five. Take the bootstrapped preset, vary Monthly revenue churn, and compare 0% against 45% re-investment at each level.

At 1.6% churn, re-investing 45% of profit is worth $7.7M of additional ARR and $3,690,288 of additional ending cash. At 6.0% the identical decision is worth $10.8K of ARR — the compounding never gets going, because the revenue you buy is gone before it can be bought against — and the business finishes under water either way, at -$824,596 with the control at 0% and -$746,135 with it at 45%.

This is the same trap described in why 2% and 5% monthly churn are different businesses, arriving from the cash side. Buying customers into a leaky base is the most expensive way to discover you have a retention problem, and the re-investment control will happily let you do it at scale.

Case study: bootstrapped and profitable

The bootstrapped preset is the clearest case for a high rate, and it is worth understanding why. It carries 86% gross margin, 1.6% monthly churn, a CAC of $2,400 against an ARPA of $320 — LTV:CAC of 7.2x and acquisition payback of 8.7 months — and it is profitable from month 1.

The published preset runs at 20%. Raising it to 60% costs $94,718 of cash by month 12 relative to spending nothing, is ahead again by month 36, and finishes with $7,941,319 against $1,922,078 — more cash and $19.4M more ARR. When acquisition payback is under a year and churn is low, restraint is not prudence, it is a decision to grow more slowly for no compensation.

The caveat is the one in the callout above. This company would have to increase its acquisition spend by a large multiple to run at 60%, and long before it got there the marginal customer would cost more than $2,400. Model the rate and the CAC together or the answer is fiction.

Choosing a rate

Start from acquisition payback, not from ambition

If CAC payback is under twelve months — best-in-class territory, typical of product-led and low-touch motions — re-investment is close to free money and the rate should be high. Between twelve and eighteen months it is a real trade and the answer depends on your cash position. Beyond twenty-four months, re-investing profit means financing customers for two years out of a balance sheet that has only just recovered, and the rate belongs low.

Then check the trough, not the ending balance

Ending cash is the flattering number. The one that matters is the minimum along the path and the month it occurs, because that is what has to stay above zero. On the defaults the trough is fixed regardless of the rate; on a business that dips again after break-even, it is not.

Rules of thumb worth arguing with

• Under 20% is right when payback is long, churn is above 4% a month, or you are managing to a specific cash balance for a raise or a covenant.
• 30% to 50% is the defensible middle for most profitable B2B businesses: meaningful compounding, cash still accumulating every month.
• Above 60% should be a deliberate, time-boxed decision with a CAC assumption that rises alongside it, and a review date at which you check whether the cohorts you bought are retaining like the ones you had.

Whatever rate you pick, say out loud which milestone you are moving. The rate cannot bring break-even forward by a single month; it can only push cumulative payback back. That distinction is the subject of break-even vs. payback, and it is the difference between a company choosing to stay unrepaid and one that has no choice.

Educational content, not financial advice. Figures here are illustrative and exclude taxes, financing and one-off items. Model your own numbers in the simulator and check them with a qualified accountant before acting.