Economies of Scale

Some businesses need to reach a certain size to be viable. That size is sometimes known as critical mass. If you don’t reach it, the business will always be unprofitable. If you do, turnover will increasingly flow through to profit because of economies of scale. Exploring critical mass and economies of scale is something we do with many of our clients, across all creative sectors.

Recognising that critical mass/economies of scale are important can lead you do do things differently.

You might consider:

• carrying someone else’s complementary product range that you can sell to those customers you’ve worked hard to gain,
• doing the reverse – partnering with someone else and using their existing relationships to allow you to enter a difficult-to-reach market. The margins may be lower that way, but the additional volume may make it worthwhile, or
• acquiring another business that does something similar. 2x the sales usually doesn’t mean 2x the cost of sales. You may need one person less, or one working space where two are currently paid for. The cost of acquiring the business may be largely offset by the savings to be made from combining the businesses.