When you choose a business, one important consideration is whether the business is scalable. You want a business where growth can be achieved easily. Unless, of course, you want a lifestyle business where your main intention is to have a business that will support your lifestyle, not necessarily to see it scale and grow.
What does scale mean?
“Scaling a business” means how easy it will be to grow the business. You want a business that can easily grow and capitalize on your success. Your client base and revenue increase without increasing your overhead at the same pace.
Ask yourself the question: What will it take you to grow your business from $1,000 to $100,000 or more in revenues per month?
If you are sewing hand-made costumes for $100 each, that may mean selling 10 costumes to 1,000 costumes per month. How are you going to handle the increased production demand? Is that something you can do with your time and resources? If you are running an online coaching business, what does it take to increase your sales? What products and services can you offer that will allow you to grow your business without chasing more customers?
The most successful businesses are those that offers products and services that are replicable and could run itself at a very large scale.
How do you scale your business?
There are a number of ways you can use to scale your small business, as follows:
One way is to create recurring revenues. As I mentioned in the article Recurring Revenue Model: Why It is Good for Small Business, recurring revenue is predictable and reliable income month after month. Instead of selling products or services one at a time, you are essentially selling ongoing, subscription-based transactions where you can expect to receive revenues on a regular basis from your existing customers.
Recurring revenue ensures you get the maximum lifetime value from your customers. You get lower acquisition cost because you are not going after the customer for that one time sell. Rather, you can expect a steady stream of revenues from the customers that you already have.
Some examples of business ideas that use recurring revenue models include:
- Auto renewal subscriptions, mostly for “evergreen” products or those products that are hard to replace and could go on forever such as document storage subscriptions
- Software as a service (SAAS) where you sell software on a subscription basis.
- Businesses requiring hard contracts such as cell phone companies where they lock their subscribers for up to two years
- Affiliate subscriptions where you send referrals to subscription-based products and get commissions as long as the customer is a subscriber.
- Supplemental services such as a web designer offering web hosting, like what we are doing with Ysari.com
- Finite subscriptions such as the annual magazine subscriptions
- Membership sites where you charge access to your products, services or information for a regular fee
- Service plans or retainers where customers pay for what they need each month. Examples of this include WordPress plugins where you have to pay a regular subscription fee (could be yearly, monthly or every six months) to avail of support and updates.
You can also scale your business by improving efficiency. This means using the right tools and technology to automate as much of the processes as you can. Checklists can be very helpful to ensure that you avoid mistakes.
Automating your business processes using technology makes it easy to do repeated tasks and saves you time to focus on the most important aspects of your business. The time potentially wasted with the tedious administration is astronomical. Make sure you set everything up from the beginning to run as hands-free as possible. Look for a technology solution that will make your life a whole lot easier.
Identify the processes that you repeatedly do in your business. Do you answer the same types of questions from customers? Then create a Frequently Asked Questions and direct them to your FAQ instead of writing the same responses again and again.
Or do you ask the same types of questions? Then you may need to create questionnaires or templates to make it easy for you to collect the responses of your customers.
Replicable Systems and Processes
Another example of scaling a business is replicating the systems and processes that worked well for you. This is a strategy you can do when opening a new store if you are in retail. This type of scaling allows you sell more, increase your sales and reduce your costs.
Instead of buying for a single store, you are now buying for two or three stores. High-volume purchases will allow you to get lower prices for everything. You get better deals in raw materials, transportation, and warehouse space, even cleaning services. This allows you to be in a better position to defend your business against price-cutting by your competitors.
Larger sales volume will allow you to offset lower per-unit profit. Your business may also benefit from having more resources. You will be able to afford bigger and better premises, increased marketing resources and added product features that provide more value for customers. Your administrative costs-per-unit should also come down, as the costs like advertising, purchasing, and other functions are spread among all your locations and products.
Have you successfully scaled your small business?