Every retailer’s end goal is to run a successful business and to transform an enterprise into an empire. Ambitiousness is not a crime by any means; it is a naturally occurring phenomenon. In theory, we call it business scaling. Scaling is a decision that should be taken carefully. If you are not ready for expansion then you would not achieve success. Thus, for your convenience, we have compiled a list of top pros and cons of scaling your business.
The Inevitable Economies of Scale:
Business owners expand their operations due to the profitability of Economies of Scale. It refers to producing more to ensure cost-advantageous and profitable sales. In Economies of Scale, the cost per unit decreases when the product is created in large numbers. If you are a restaurant owner producing more burgers to decrease per unit cost and increase clientele is natural. So, entrepreneurs boost productions to get profits. Producing 100 units of a product for the same price at which they created 75 units before ensures a profit. Since the extra 25 units sale would be pure profit.
Employment Opportunities and Extended Workforce:
Business scaling has two-dimensional benefits. One, that you get to hire fresh minds. Two, you help the community by offering employment opportunities to unemployed individuals. Not only is it in the best interest of your business but for the entire local economy. Relying upon old staff is a good idea. But, it is also important to use fresh minds. New employees offer innovative ideas with their understanding of new-age techniques. Large workforce helps you in:
- Improving your current business model,
- Focusing on important aspects,
- Pursuing many more options from sales and marketing perspective
- Playing a positive role as a community member
The probability of Profitability:
Appropriately planned and conducted scaling lead to success. As we know that in the business sector, success means earning profits. So, it means that scaling your business helps you make more money. In this context, the economies of scale play a role too. As you expand your retail productions, you connect with new vendors.
You ensure improved connectivity and networking at domestic and/or international level. This would lead to a much larger expansion of business in the future. You will make friends in the same fraternity when you buy from suppliers in bulk and may even get discounts.
Establishing your brand and becoming a force to reckon with is a beneficial aspect of business scaling. If you keep your business small-scale then your products or services will remain unnoticed. But, start scaling your retail productions/services and everyone will be talking about your brand. Your company’s growth will bring you into the limelight. The day won’t be too far when you will become the industry’s leader.
Larger Chunk of Market:
Since scaling relies upon the economies of scale so, you cannot avoid the domino effect. When you produce more, you are actually trying to expand the customer base. You would want to boost market demand to sell your extra productions. To do this, you conduct aggressive marketing campaigns or offer products at unbeatable rates. Either way, you will be able to achieve increased buying interest of customers. Thus, your business will continue to grow and per unit costs will fall ensuring profits.
Issues related to Supply chain management:
Supply Chain management refers to streamlining the supply-side of the business activities. It helps you enhance customer value and gain a competitive edge in the market. Expanding a business is easy but managing it, in the long run, is hard. You need to ensure that every part of the chain well-coordinated.
Scaling your business does not guarantee that you will meet success soon. It is a risky process and there will be ups and downs down the road. Learning to manage large business takes years and experience definitely counts in maximizing efficiency. So, you must make sure that you can handle the new layer of complexity aptly before scaling the business.
The risk associated with Brand Dilution:
Having a large workforce is an invigorating idea indeed. But it is not possible that all employees share similar passion towards company goals. Especially when expansion planning involves opening new branches. If employee motivation is not the same, the new team will fail to deliver the kind of service that is your trademark. So, keep in mind that you need to recruit skillfully and train new employees well.
Profits and revenues are the primary motivational factors behind business scaling. But, producing more requires investing more. It is not possible to get high profits without making any hefty investments earlier on. For example, you may want to open up a new branch of your restaurant to get more customers. But it will need investment. And the aim will be achieved in due time only. Thus, investment is an important variable that you need to consider before expansion.
Trade Pressure is Hard to Comply with:
You need to increase your sales output to do economies of scale. Some entrepreneurs prefer to buy goods in bulk to increase sales volume but it is quite risky. Hiring new employees or investing in marketing campaigns to increase profits are risky deeds. There will be immense pressure all the time. This might generate tension between leaders and employees.
A major risk of scale is excess inventory. If you are unable to sell out extra goods then you may have to get rid of them through discount offers. This will reduce your gross profit. If you have bought goods in bulk but the market demand wanes then this will negatively affect your gross profit.
No need to feel hopeless due to the cons as countless success stories show the benefits of scaling. Patience is the key to successful business ventures. But, at the same time the skill to check market scenario and public impression before attempting scaling that helps most.