What is scalability?

Scalability is a way to figure out how well a system can handle more work. A system or method is scalable if it can get bigger and better at meeting demand without losing effectiveness or performance.

When used in business, scalability usually means one of these:

• Goods and services. Scalability is the most important thing to consider regarding cloud technology or SaaS. Because B2B customers often add new users or change their needs, they need flexible services and work at the same speed even when the computer is busy.
• Plans for businesses. The resources and organizational structure that scalable businesses already have don’t limit their growth. Making a business bigger with some methods is more accessible than with others. Most people agree that any recurring income model, not just the subscription business model, can be expanded the most.
• Structures of organizations. Businesses usually need to make changes to their internal teams as they go through different stages of growth. Scalability, in this case, means how well an organization’s processes and departments (like sales, marketing, and customer success) can handle growth.
• How the business works internally. Scalable business processes can boost output without increasing costs by the same amount or more. Most of the time, automation is used to make a process flexible. It eliminates the need for typing, which means that the same number of people can do more work.

A critical difference between scalability and growth potential is that scalability involves making processes more efficient and effective. It is not “scaling” if the increase in sales is equal to or greater than the increase in spending.

Synonyms

• Business scalability
• Cloud scalability
• Software scalability

Why scalability is good for business

Meet the needs of a growing market

The main goal of every business is to make money. One part is having a great product or service people want. The other part is being able to sell it quickly.

As sales volume rises, businesses struggle to maintain quality and meet customer standards. When they first started, a small e-commerce brand might have been able to fill orders with manual labor and methods. They can’t keep up with rising customer demand if they don’t automate their internal processes.

Scalable businesses have the systems and connections to meet higher market demand quickly. This means they can start selling more of their product without considering how to keep costs low.

A higher value

A business can start making money, getting more funds, going public, or selling faster if it is more scalable. Scalable businesses are worth a lot more when they want to be bought out (or, better yet, when trying to attract buyers).

The average SaaS revenue multiple from 2015 to 2023 was 5.1x revenue. During the same period, 25% of all SaaS acquisitions exceeded 9.7x revenue, a very high multiple in most businesses.

The same benefit is seen in other fields, focusing on running efficiently and using standard procedures. For example, dropshipping-based e-commerce stores make much more money than those that handle their inventory. They’re also easy for the buyer to take and run with. That’s why they sell for more.

More money in profits

Thanks to economies of scale, costs per unit sold can decrease as a business grows. Making one item takes the same time and materials as making 10,000 or even 100,000 items, but the cost is spread out over a larger number of items. Global companies are more efficient. They use less resources and labor per unit because they are more extensive.

Companies that try to become more prominent get better deals from their sellers and vendors. These companies get lower prices and faster delivery times in exchange for more oversized orders. This is one example of how higher demand can improve friendship for both parties over time.

Growth in sales

Growing a business means entering new markets or making products that work together to meet the wants of more customers. If their systems are scalable, they don’t have to start from scratch whenever they want to expand their market. Instead, they can focus on making more money with the resources they already have, like raising prices or increasing the total value of customers.

Scalability lets companies put their profits back into their business instead of hiring more people, spending a lot of money on research and development, or changing their whole business plan. That way, they can make more money while keeping the costs of goods sold low and their growth rates steady.

Savings on costs

Scalability does more than make processes better when they work at their best. The business can also save cash.

Automation helps businesses reduce the work that goes into making and selling things. You can automate everything, from handling customer service tickets to writing package labels. This saves you expensive employee time and even more expensive mistakes.

Standardizing activities is still a good idea for tasks that can’t be automated. Core operations like sales motions, customer onboarding processes, and more can be broken down into jobs that can be done repeatedly without having to think about them every time.

How a Company Makes Sure It Can Grow

A Look at the Market

Companies can learn about trends and customer tastes by analyzing the market. These insights help companies plan their activities, make the best goods, reach the ideal customers, and discover the best product-market fit.

Surveys and focus groups are two types of market research tools that are used in the analysis process. Marketing automation and web analytics are two types of data sources that businesses use to learn more about their customers and what they do on their websites and with their marketing materials.

Improve pricing

Pricing can be improved in a vast number of ways. Most businesses use more than one type of differential pricing to change prices based on the types of customers they have and how often they buy things. However, a company’s exact mix of pricing methods and product prices depends on its business systems, goals, and objectives.

It costs less to sell something when it’s easy to do so. When a business knows its market well, it can set prices that simultaneously reflect its value offering, what customers expect, and its business costs. Because of this, sales are moving faster, and income is growing faster.

In this way, price optimization raises a customer’s lifetime value (CLV), boosts sales and simultaneously lowers costs.

Set up growth-supporting systems and help.

When a business reaches a certain amount of growth, it usually needs to hire more people. A lot of the time, this costs more, which means short-term profits are cut substantially.

One great example of this is marketing firms. Once you have a certain number of clients, you can’t do any more work without hiring more specialists. Even if you only hire a few people, that’s a six-figure bill.

Every business will eventually need to hire more people to run at a higher level. However, business owners and leaders (especially in startups and small to medium-sized businesses (SMB)) often mix up “scaling” and adding more people.

An organization must standardize its processes before it can even consider building a team. One way to do this is to use a sales approach.

Plans for sales and marketing

Companies that do market research ensure their products fit the market well, set the best prices, and create systems and support strategies ready to grow. That doesn’t mean that they’ll be making a lot more money soon.

Now is the time for businesses to focus on their sales and marketing plans. The second group could help their sales teams finish more deals quickly with process maps, automated email campaigns, and interactive playbooks.

Businesses should use their existing platforms and put money into new ones for their marketing campaigns. This could mean making posts for social media, using SEO to improve their website, or spending money on PPC ads to get people to buy.

Data is what’s important here. To figure out which tactics are working and which ones they need to change, companies need good tools for tracking engagement/conversion and revenue attribution. In addition, this gives them more financial freedom, which helps them save even more money.

Outsource and automate as much as you can.

Here are the two best ways for a business to grow:

• Hiring someone else to do a business task will save you money compared to making it yourself.
• Make it completely automatic.

When you outsource, you might work with a freelancer or a firm. It could also mean hiring a third-party vendor (like a 3PL) to perform tasks like customer service, lead creation, or inventory management.

Process automation is the process of making rules and systems that work independently without help from a person. Software is the only way to do it because it changes and updates processes and user interfaces when certain events happen. Examples include automated email campaigns, webinar sign-up pages, and SEO/PPC efforts.

Use technology that can be scaled up.

Buying software that doesn’t work with the rest of your current or future tech stack is one of the worst things a growth-stage business can do. This means a lot of physical work and double-entry, making things less efficient and costing much more in the long run.

The main focus should be on scalable, integrated systems that can handle more customers, data sources, and operational complexity without spending much money on hardware or staff.

When choosing a software platform, the main thing that should matter is its flexibility for future growth. Some things about scalable technology are:

• Being able to add more people
• Easy integration with technologies that work with it (for example, CRMs and marketing automation apps)
• The ability to add more storage space
• Maintenance and changes that are done automatically
• Access to the API for custom solutions

Essential Parts of a Business Model That Can Grow

Standardized methods

Scalability can happen because of standardization. Organizations can better handle pressure from both inside and outside by implementing regular processes and consistent standards.

This is the most important thing for business growth because it determines what tasks will be outsourced or automated and how they will be done. A company won’t know how to invest in future growth, workers, software, and partners if they don’t standardize.

There are no physical or material limits.

Lack of workers, working cash, development, storage, systems, technology, or capacity doesn’t stop successful businesses.

Companies get rid of natural and material limits in five main ways:

1. Use more than one route for distribution and the supply chain. If a business depends too much on one source or distributor, they will be in a terrible spot if they decide not to work with them anymore or can’t. The same is true for avenues of sales and marketing. Companies have more chances to connect with potential buyers when they sell through multiple channels. This means they have more sales possibilities.

2. Getting around limitations on product size. The “most” scalable business should be able to handle any amount of demand. This isn’t possible in real life because there are limits built in. That’s why companies should work on getting past minor problems that stop them from doing their best to eliminate them. Server or hardware capacity limits, production limits, working hours limits, products that don’t last long, and a lack of resources are all common examples of capacity limits.

3. Strategic relationships and acquisitions can help you lower your CapEx. Sometime in the future, growing will need money upfront. For most businesses that want to grow, buying a company with the technology or equipment they need to provide those services is wiser than spending money building their own from scratch.

4. Find ways for customers and partners to buy from you. Customers and channel partners sell a product to the company for free. This is different from sales and marketing teams, who usually get paid a salary plus a bonus or fee. Companies often use customers and partners to make more sales without spending more money. Some examples are affiliate programs, value-added resellers, and recommendation programs.

5. Turn your enemies into friends. The most successful companies find ways to sell their goods to other companies in the same field, which helps them make money from their rivals. Co-marketing deals and joint venture partnerships are simple ways to use this in a business plan. Some businesses let their rivals use their resources (like a factory or unique software) to make a better product for their customers.

Leadership’s Promise to Grow

Businesses that know how to grow know that it doesn’t just happen. It begins at the top.

The leaders of a business should set the tone for its scalability plan by:

• Making it a part of the company mindset to be scalable
• Putting people and technology efforts at the top of the list
• Giving tools to the right places
• Getting workers and other important people on board
• Putting money into help and customer service
• Having a long-term plan for how the business will grow

Every company executive, investor, and board member needs to agree on what scalability means, how they’ll get there, who is in charge of what tasks and big choices, and how they plan to measure success.

Prices that are best for growth

At each stage of growth, price management is different for each company.

• When a business starts, it might use penetration prices to get people to buy. While low prices can help boost sales and grow a business’s market share, ensuring the company isn’t sacrificing its bottom line to get more sales is essential.
• A business that is still growing might start offering different levels of a product for the first time. The company might use a tiered pricing structure to reach customers with different budgets.
• Bigger businesses generally have different prices for different service levels and product bundles and special prices for large orders from vendors or business accounts.

Since market trends change constantly, no one price will always help a business make the most money and be the most efficient. If they want to achieve long-term scalability, they need a way to keep reviewing it.

Investing in technology

Because each platform is different and affects each business, it’s hard to put a number on the benefits of investing in technology.

One thing we know for sure is that businesses today would not be able to run without it. Digital personalization, marketing automation, working together as a team, and handling payroll are just a few of the many tasks that software makes possible.

Companies that are good at growing know that they have to spend money on technology to do so. They spend money on tools that help leaders make big decisions, align different departments, take over manual tasks, and improve the customer experience. These tools also help workers do their jobs better.

It is essential to remember that putting too much money into technology could make things less efficient. When businesses choose which tools to use, they should be careful not to add extra steps to the process they want to improve.

Automating Things

One of the best ways to improve scalability is to automate tasks. Process automation is a general term for software that takes over tedious and time-consuming tasks that used to be done by hand in a company.

Typical tasks that are automatic are:

• Getting new customers
• The billing process
• Taking and sending out orders
• Making sales quotes and proposals
• Keeping track of inventory
• Scoring leads and qualifying them
• Advertising events
• Helping customers
• Customization in digital form

The most critical business automation tools are chatbots, CPQ software, CRM software, customer data platforms (CDPs), email marketing, ERP systems, and price optimization.

Examples of Scalability

Scalability is a word that is used in almost every business area. Here are some examples:

• Retail: Retailers are usually considered “scalable” when they can open more physical stores and keep sales the same. And the same is true for stores that do well in e-commerce.
• Computing: Adding more computers or servers to a network enables it to handle more information simultaneously. With cloud computing, we can store almost infinite amounts of data or set up any system or service. The only thing that limits us is the number of data centers we can pay to build.
• Sales: If a company spends $2 million yearly on ten new sales reps but only makes $1.5 million more, its sales methods aren’t scalable. This could happen if there aren’t any standardized methods if the service is too personalized, or if there aren’t any tools to help with sales.
• Manufacturing: A company can make many things until its output is limited. It would be costly to build a new factory to make the extra 10,000 units needed if the current plant can only make 10,000 units per week.
• Sustainability: For environmentally friendly innovations, like electric cars, to work on a large scale, they need to be cheaper and easier to get than their dirty counterparts, like gasoline and diesel cars.