How Scalability drives Profitability!

A study of the intrinsic properties of Scalability shows that once a business is scalable, its is invariably profitable.

Table of Contents

What is Scalability?

Scalability is the ability to multi-dimensionally increase the different properties of a particular enterprise. Scalability is the ability to increase profits without significant increase in cost of dong business.

In paying attention to scalability, one part of the business that cannot be ignored is profitability!. An increase in profit while the business is growing is what lends credence to the fact that the business is growing. Achieving scalability is driving up profits without a commensurate increase in the cost of production.

Generally, the degrees of scalability of business differ from each other, with some holding a higher degree of profitability compared to others. E.g Brick and mortar stores have a lower scalability potential compared to SaaS Businesses because it costs more to build, open and stock up a new store in another part of town than to simply license the software to another company/individual and continue to receive a commission.

The scalability potential of any business must be evaluated by the founder before venturing out, this helps ensure that a business model that is profitable in the long run is adopted.

how scalability drives profitability — How Scalability Drives Profitability

Technology and Scalability

The automation of processes in any business is the bedrock of scalability. An automated process would mean a process can be carried out infinitely without a significant increase in the cost of production, it simplifies processes involved in doing business and provides superior scaling opportunities.

As mentioned earlier, the degree of scalability is greatly impacted by the nature of the business, however, it must be noted that every business type can successfully integrate technology to make the business scalable. E,g. A Supermarket can automate inventory management to ensure that products can be added automatically and update automatically when sold, the finances can also be done automatically as an extension of the automated inventory management system. This allows the supermarket to determine cash flow, profitability, and stay on track with its goals.

For Information Technology Businesses, there is more advantage o how they can implement technology in growing their business. There are instances where businesses grow solely online – we have seen truly internet brands such as WARBY PARKER whose business model is entirely online – from reaching new consumers to building relationships making sales, etc. The possibilities are truly endless.

Customer acquisition and experience

Digital marketing is one way technology helps in makes it easier for you to do business. It is more efficient to reach millions of people online than trudging the streets to meet a million people. Customer experience has also significantly improved using chatbots and automated responses to generic questions that concern your business.

What is Profitability?

Profitability is the inherent ability to make profits from a particular enterprise

Profitability usually is dependent on other properties, as a business is not profitable because it’s profitable, rather it is profitable because its doing other things right. One of such things can be scalability. A business that is scalable will find it much easier to be scalable as more can be achieved with less. The process of achieving profitability can be difficult.

Growth and Profitability

For growing businesses, profitability is one thing they must pay attention to in order to stay in business. Not all businesses will raise billions of dollars from the scratch, but all businesses will require spending money to grow, this is where profitability comes in. Businesses that are unable to raise money early on can use profitability as a proof of concept rather than trying to use scalability. It is much easier to be profitable than to scale.

Related: Bootstrapping your Business

Growth and Scalability

Growth can be defined as the rapid scaling of a company. Scaling a business and growing a business are two closely related entities. A business grows when it scales even though business does not necessarily scale when it grows. Considering that scaling only happens when you significantly increase profitability without a significant increase in efforts or cost. See the business professor

If a service business employs 10 more personnel to cater to the growing customer base, it has grown but has not sufficiently met the criteria for scaling. Scaling would mean providing its service without taking on that enormous personnel cost. For instance, a business that offers personal fitness coaching can instead of employing more personnel as personnel coaches, simply record their lessons and sell at a cost. These recorded sessions can in turn be sold to an infinite amount of people. This is Scaling!