5X: The Golden Rule Of Successful Entrepreneurs (2025)

Over theyears, I’ve had the pleasure of meeting and working with thousands of entrepreneurs. By and large, most of these men and women were smart, passionate and building companies around real market opportunities.

However, many (if not most) of their businesses were struggling or failing.

After starting a few businesses of my own, I started to wonder, why are some companies runaway successes when so many others crash and burn?

For a while, the answer eluded me, but eventually, I discovered that—whether they realized it or not—successful entrepreneurs follow a simple rule:

Every dollar spent on growth must produce 5 dollars in revenue.

I call this the 5X rule. Successful, growing businesses make 5 times what they spend on marketing, advertising, sales or any other growth channel.

Why the Rule Works

To help explain why this rule is such a good predictor of business success, let’s run through a quick hypothetical scenario.

Say you inherited a small, deep sea fishing guide business from your father. Your boat is small, so you can only take one client out at a time, but you charge $150 per trip.

Up till now, you’ve been running your business based on direct sales, repeat business and word-of-mouth, which nets you 20 sales and $3,000 of revenue per month.

Of course, you have to pay about $75 for fuel, boat repairs, bait and other trip-related costs every time you head out to sea, so you really only end up with $1,500 of profit every month.

Or at least, that’s what you thought when you inherited the business.

On closer inspection, you discovered that this was a lifestyle business for your dad. He was an old seadog with a pension and he didn’t care if he was making money—he just loved catching fish!

And, as it turns out, it costs you around $2,000 every month to rent an office and your spot on the dock.

With $3,000 of revenue and $3,500 of costs, your business is losing $500 a month.

So, if you want your business to survive and grow, something has to change.

Unfortunately, you can’t afford to buy a bigger boat and if you increase your prices, your current customers will leave. However, it occurs to you that most people like to book fishing trips online these days, so maybe you could drive a lot more business if you started advertising online.

Here’s how your advertising efforts might pan out:

You Spend $1.00 and Make $1.00

In this scenario, your online advertising investment produces one $150 sale for every $150 you spend.

At first glance, this looks like a break even situation, but it really isn’t.

Remember, each trip costs you $75, so if you spend as much on acquiring a new sale as you make from the sale, you lose $75 on every transaction.

In a 1X-type situation like this, more sales actually equals less money for your business:

You Spend $1.00 and Make $2.00

But what if you make $150 for every $75 you spend? That will balance out the cost of a trip, so you’ll be breaking even, right?

Well, technically that’s true, but remember, you didn’t start advertising to break even, you started because you need to dig your business out of a $500/month hole.

If you only break even on your advertising costs, you’ll never make any headway against that deficit:

You Spend $1.00 and Make $3.00

Now things are finally starting to make sense. If you spend $50 and produce a $150 sale, you actually make $25 after paying for the costs of the trip itself.

You can put that extra $25 towards your $500 deficit and—if you get at least 20 extra sales from your online advertising each month (40 sales total)—your business will finally break even:

At this point, your business is at least sustainable, but you probably can’t make a whole lot more than 40 fishing trips a month, so your business isn’t going to grow and you still aren’t making any sort of profit.

You Spend $1.00 and Make $4.00

However, if you can get your advertising cost down to $37.50 per sale, you can actually begin to turn a profit from your advertising.

Sure, you might only be able to make 40 fishing trips a month, but now your business breaks even after just 34 trips:

Once you’ve sold 34 fishing trips, you only have to pay $37.50 in advertising costs and $75 in fulfillment costs per trip. That means you make $37.50 on your last 6 trips.

Guess what? You’re finally turning a profit!

You Spend $1.00 and Make $5.00

If you can pay just $30 to produce a $150 sale, your business will break even after 31 fishing trips:

Your last 9 trips will each be worth $45 of profit, which means you end up with $405 of profit at the end of each month.

If you’re willing to reinvest that $405 into growing your business, you can sell your current boat, take out a loan and buy a bigger boat that will allow you to take 4 people out on each trip.

Sure, the new loan will probably eat up that $405 of extra profit you were making, but if you can book 160 tickets each month at $45 profit per trip, you’ll be making $5,400 of profit a month.

And, if you take that profit and reinvest it in a second boat and hire another captain, you’ll be well on your way to building a deep sea fishing empire!

Where Does Your Business Stand?

After talking to hundreds of business owners, it’s become clear that this rule is a great predictor of business success.

To put it simply, most companies break even at 3x, are profitable at 4x and grow once they reach a 5x multiple. Companies that hit a 10x, 15x or even 20x cost-to-revenue ratio are usually well-positioned to dominate their industry.

With that in mind, the question is, where does your business stand?

Fortunately, that’s fairly easy to calculate. All you need to know is what you are spending to produce a new sale and how much that sale is worth to you.

Going back to our deep sea fishing example, here’s how you could calculate your advertising multiple if you spent $1,000 and generated 40 sales:

Step 1. Divide your advertising spend by the new customers you obtained from your advertising efforts.

[$1,000 in spend] / [40 sales] = $25 of advertising spend per sale

Step 2. Divide the value of a sale by how much you spent to produce that sale.

[$150 revenue per sale] / [$25 cost per sale] = $6.00 of revenue per $1.00 of advertising spend

That’s a 6x multiple!

Putting the Golden Rule to Work for Your Business

You can use this same formula to evaluate the profitability of all sorts of business investments and determine where your company needs to make improvements.

So, if your sales team is only producing $3.00 of revenue for every $1.00 you pay them, your company is probably doing okay, but you may need to change something up if you want to grow your business.

If you’re in a service industry and an employee is only producing $1.00 of revenue for every $1.00 you pay them, they probably need additional training or support.

Or, if you are considering a new software and you can’t figure out how that software will produce more than $2.00 for every $1.00 you spend on it, it might not be the software for you.

Make sense?

Now, not every situation is as cut and dry as the examples in this article, but the fact remains, growing companies operate at a 5x or better multiple. If you want to be one of those companies, your business needs to operate at a 5x multiple, too.