Scalability is an opportunity for business growth. It is especially important when a company decides to trade across borders, which opens it up to new markets and new consumers. What do you need to know about scalability in business and its impact on sales outside your country?
Scalability in business – table of contents:
- Scalability in business
- Operating leverage
- What determines scalability?
- Scalability vs. cross-border trade
Scalability in business
Scalability is the ability to further expand or miniaturize a system. The term was originally used to describe computer programs, but is now readily used in the business world. To be successful, a company must be able to grow freely on many levels.
Generally, scaling is preparing a company in such a way as to enable and support its smooth and dynamic growth without any obstacles. What matters here is choosing the right human or system resources, as well as developing and implementing the right company processes.
Scaling the business means increasing the company’s sales revenue without increasing the basic operating costs, mainly fixed costs. Every effort should be made to ensure that any investments, such as marketing activities, translate into actual profits. Keep in mind that the company should be able to serve new customers with the highest possible quality.
Scaling up does not always require hiring new employees or increasing expenditures. Scaling up usually involves introducing new products or services that will generate interest among customers. Automating processes also brings many benefits.
When describing scalability, the concept of operating leverage is used. This is an effect that reflects the changes in operating profit caused by another, generally larger sales volume. In a nutshell, profits will increase as revenues increase.
The strength of operating leverage depends on what the structure of fixed and variable costs is. Fixed costs remain at a similar level regardless of the volume of sales. Variable costs, on the other hand, are directly related to the revenue generated from the sale of goods or services.
Any increase in revenue entails an increase in variable costs. The greater the share of fixed costs in the overall cost structure, the greater the strength of operating leverage. Once the so-called break-even point (revenues are sufficient to cover fixed and variable costs) is exceeded, profits begin to increase very rapidly.
What determines scalability?
Scalability in business is affected by various variables, both internal and external. The first internal factor includes the business development strategy that the managers have chosen. Self-financed businesses develop more slowly than those funded by external investors.
Also, the type of industry in which you operate matters. The tools you use are also important, e.g. new technologies offer many more opportunities. Scaling a business is a big chance, but it may involve a lot of changes to the company.
External factors are related to the size of the target market – companies operating in small, emerging markets have a good chance of rapid growth. Competition is also important – when it is at a high level, it must prompt the company to take measures that will distinguish it from other companies with a similar profile.
Scalability vs. cross-border trade
More and more entrepreneurs decide to expand their businesses across borders. This is an excellent opportunity to increase profits by reaching new customers.Your business should be scalable not only in terms of the organization itself, but also in terms of customers. When you enter new markets, your online store gets many more users, so it requires improvements or new functionalities. In this case, optimal scalability of the system is essential.
Scalability of a system or application is the ability of a site to grow and manage increased demand. Such a platform can be easily adapted to changing consumer requirements. It must be efficient even with higher operational demands. The site must be prepared for increased data processing.
How to increase the scalability of the system? Ask yourself what specifically you want to achieve. The next step is usually an audit. Specialists check what bugs are slowing down the site and what other elements are holding back the development of the platform.
Once the errors in the source code are fixed, the online store is able to accommodate significantly more users coming from other markets. Improved performance greatly affects the achieved profits.
Read also:What is an e-commerce strategy?