I have a simple question for you today? Is your business scalable? A business that is not scalable will rarely if ever get you the financial freedom that you desire. Scalability is crucial.
So, what exactly is scalability? If a business is “scalable” it can sell more products, make more sales without dramatically increasing its costs. For example a franchise like McDonalds or Subway is difficult to scale. In order to increase their sales, franchises need to find new locations, build brick and mortar restaurants, stock physical inventory and hire new staff, just to name a few of the expenses. It’s a strategy that can work but it takes very deep pockets.
When it comes to home-based businesses, you need to be aware of a few things that will hold your business back and prevent it from scaling up. If you’re selling physical products, the physical inventory is expensive. You need to order it, pay for it to be shipped and pay to ship it back out. All of this costs money and man hours. You can increase your sales only to a point. Eventually, you’ll be forced to rent more space or hire more employees to meet the increasing demand. It’s very expensive.
You could try selling low-priced, low-margin products. The difficulty in scaling a low-priced, low-profit product is that greater sales numbers don’t translate to greater profits. Let’s say, you sell a $50 product with a $25 commissions. If you start out selling 100 a month, you clear $2,500 per month minus what you spent on advertising. Let’ say that your advertising was 10% of sales ($500) that means you cleared $2,000.
Let’s say, you pump up your advertising and increase your sales by 10 fold. Now you clear $2500 minus $5000 in advertising for a profit of $20,000 and you had to make 100 sales to get there. Let’s say, you sell a product with a $500 margin. If you start out selling 10 per month, you can clear $5,000 per month minus what you spent on advertising. If again, it’s a 10% of sales ($1,000), you cleared $4,000 in profit on just 100 sales.
The more you scale up, the better it gets. That’s the power of scaling up with high-profit, high-priced products.
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