What Does it Mean to Scale your Business?
Did you know that in the business world there’s a difference between “growth” and “scale”? While people sometimes use the words interchangeably, there are a few big distinctions. Knowing what makes these processes distinct can be the key to updating your business plan for maximum success. Want to know how to tell “growth” from “scale,” and why it matters? We’ve got you covered!
Playing the Long Game
Explosive growth can look and feel great, but if the business isn’t scaling, that growth may not be sustainable. For example, if a woodworker who makes and sells handmade crafts suddenly becomes very popular and receives many new orders, they’ve successfully grown their customer base and taken in more revenue. However, to be sustainable, the woodworker also needs to scale by ensuring they have enough raw materials to produce their crafts, then develop ways to fill and ship out the orders in a timely manner. Thinking about the business in a holistic way and making sure all the pieces grow together and support each other, will keep the business model healthy for the long run.
Like for the woodworker above, both growth and scale mean having a bigger company and more profits. The difference is in the ratio. A business that has only grown will take in more money, but its losses and expenses will be greater, too. A business that scales will not only grow its intake, but also its profit margin.
What is a Profit Margin?
Net profit margin is the amount of each dollar that generates a profit for the business. For example, if you spend $70 total on production, marketing, payroll, and other expenses, then sell your product for $100, your net profit is $30. Your profit margin is the percentage of the net profits compared to total revenue. For a business to scale, the revenue stream must increase without a huge rise in costs.
While every industry is different, a “good” net profit margin to aim for is 10% or more. Some companies and industries, such as retail and dining, may have profit margins under 5%, whereas others, like real estate and accounting, typically exceed 15%. Of course, as a business grows, it’s often necessary to incur more costs, like hiring more employees to keep up with new demand. If that’s the case, businesses sometimes need to get creative to maintain a favorable profit margin.
One valuable way to expand your reach and limit costs is to go paperless: leveraging the internet and social media platforms for your marketing purposes. The web is a powerful scalable asset, meaning creating content costs the same no matter how big your audience. For example, creating an Instagram graphic will take the same amount of time and money whether 50 people or 500 people view it. Compare this to more labor and supply-intensive marketing like producing flyers, mailers, or brochures, and you can see a big difference in cost. (As a bonus, you’re saving some trees!)
Ready to Scale?
SVF is seeking applications from deaf-owned businesses that are ready to scale. Becoming an SVF partner means access to investment funds and guidance from experts, so you can develop a plan to scale that’s tailor-made just for you.