One of the critical determinants of a businesses success is the scalability of the business. Recently I discussed this topic with a client who was transitioning from owning a Lawn Care to a Paving Company because he felt that the latter was more scalable. What goes into scale is a variety of things such as gross margin and fixed costs. The higher gross margins are the more likely a company can spread its margin over its fixed costs so as to be more profitable. Businesses that have a high ratio fixed costs relative to variable may have initially low profitability, but can gain scale and margin as revenues ramp. Vice Versa scale isn't really that applicable or important like in certain services businesses as most costs are variable. Those businesses that have high gross margins and low fixed costs are usually more highly valued as a result. Sometimes knowing how scalable a business can be can be a key determinant of its success and value in the end. Here at CCS we analyze a business' scalability then determine ways to achieve it to maximize profits and ultimately the value of the firm.
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