I have spoken a lot about the scalability of a business. In one of my articles, I once said: “A scalable business is a business that has the potential or wields the capacity to grow rapidly with sky-high returns on investment. When we are saying a business is scalable we are saying that its product(s) or service(s) can be availed to an ever-increasing number of people with very limited costs incurred. Scalability entails more than just the rapid growth factor. There are other aspects to scalability that are worth mentioning, e.g., a business’s ability to be ascendable, elastic and innovative.” The question though is how you determine if your business is scalable. That is what I am looking at in this article.

What It Takes To Determine Scalability

It can be very tempting to assume that your business or startup is scalable. Anyone would want to believe the best of their enterprise yet at times you can be wrong. Determining scalability requires one to make some honest and specific calculations. Remember there are 3 core aspects involved in scalability. These are customers, costs, and profits.

Scalability is all about a business or startup’s ability to rapidly grow its customer base and its profits without a corresponding surge in costs. Relatable examples of scalable businesses are Google and Facebook. The costs of running their core infrastructure are relatively constant despite surges in their customer bases and profits. Basically what you use to determine scalability is centred on customers, costs, and profits, amongst other things.

What Are The Fixed Costs Required To Establish Your Business?

When you start your business it does not immediately become profitable. There will be some time when your revenues will be eclipsed by the operating costs. You have to then project when or how long it will take to get to a point where you begin to see profits. How long and how much it will take you to get to that point? That gives an idea of the scalability of your business. If it will take your business ages and ever-increasing costs to get there, it is not scalable.

Operating Costs Versus A Surge In And Number Of Customers Revenues

Look at your current operating costs, say, every month. This means you are going to study the trends for your business over some time. For instance, you can look at the past 6 months or maybe 1 year. Analyse how the operating costs shift in light of the rising number of customers. Analyse that also with rising revenue volumes. You can find operating costs spiking due to increases in the number of customers and revenue volumes. If that is the case then the business is not scalable. Scalability is seen in the operating costs being ‘fixed’ which denotes a semblance of being constant. You can make these analyses in hindsight or you can project.

What It Takes To Get To The Desired Destination

There are desired destinations when it comes to running any business. You want to get to a point where you start realizing profits. You want to get to a point where you perpetually realize profits. You also want to reach a point where your revenues continuously grow. In light of these and more, you will have to ask some questions. For instance, how many customers will it take to reach a breakeven point? Alternatively, it can be how much revenue will it take to reach a breakeven point? That will also necessitate the question, how much will it cost me to reach that point. The cost element will also beg the question, will you need some investment and how much? Another key question would be, how long will it take to get there?

End State Economics

You have a desired destination in your business pursuits; basically your end state. What theories, principles, and models will you be using once you reach that destination? Will they be ethical, efficient, and sustainable? How many customers will you be having by then? What will your financials be like? What will be your projected growth rates moving forward from that point? These are some of the questions you have to explore. They will give you a clear picture of whether or not your business is scalable.

These are the 4 fundamental keys you can use in determining the scalability of your business. It is important to be abreast with these dynamics because investors are keenly interested in this. A scalable startup or business is more likely to get funding from investors.