Behind every successful business is a scalable business model that will multiply profit over time, while avoiding a rise in costs. Scalability is one of the most critical factors for business owners planning to take their businesses to the next level. But what really is scalability? This is the characteristic of a business model that explains the capacity of a business to cope and perform under increased or expanding workload.
Regardless of the business model you choose to work with, it is vital to consider how this model will affect the bottom line especially when you expand the scope of what the business is offering its customers. Will the business output always require increased input for it to grow? For example, do you need to hire more staff whenever there is a boom in sales particularly during peak seasons? These are some of the questions to consider before you plunge right into expansion.
If your answer is ‘Yes’ to the questions above, then your business model may not be scalable enough to yield increased efficiency and profitability over time. Linear growth consumes resources, and you need to decide if investing in this growth model will be equivalent to increased revenue. Without scalability, businesses can grow but the increased profit margin of linear growth models won’t be achieved. For example, if your business requires employing more staff whenever there is an increase in sales, to expand invariably implies increasing costs to support the additional sales. Whatever you do, avoid this linear model!
Businesses that are highly scalable, grow exponentially because they are not weighed down by the sales growth cycle in linear models. Rather, as sales go high, costs stay flat, giving rise to increasing levels of profit over time. Businesses with high scalability grow with lower capital requirements, making them more efficient and more attractive to initial investors. Many technology companies like Google, Apple and Microsoft, have mastered this type of scalable business model. To replicate examples of these successful, highly scalable business models, try adjusting your current business model so an initial investment in technology will support exponential sales growth down the road.
Although not every business is created for exponential scalability, implementing some adjustments in key areas of the business can boost its scalability. Review the business processes and find a way to cut down the redundancies. Also, improving scalability can be a bit difficult especially when you are in the business of providing services, but it’s not impossible. It is essential for service-based businesses to find processes that can be automated.
Still on automation, increase the scalability of the business by supplementing its processes with software. For example, instead of relying solely on human capital to handle things like scheduling or data entry, invest in software that reduces employee labour and allows the workflow to be more efficient.
Effective business scalability is all about increasing output while keeping costs low.
If you found this article useful, bookmark 234Finance.com or kindly follow all of our social media pages for more business tips.
Image Source: Lynda
234Finance is an online hub that promotes African Entrepreneurship. We feature small and medium sized businesses on the platform, shedding light on the current and future developments in diverse sectors across Africa. We also provide free resources, share opportunities and events on our platform that entrepreneurs can benefit from and thrive in Africa’s tough business landscape.