Many business coaches talk about “scale”, but what is it exactly? To scale a business is to be able to grow it without requiring as many resources as the first outlet – your “pilot project”. A perfect example of scale is the old pyramid scheme. If you were the first to sell the product, that’s just you selling, and if you work at it every day, you’re limited to the sales you can make each day. To sell more, you either have to sell to customers who can and will buy more or engage another salesperson. If this new salesperson pays you a small percentage of every unit that they sell, you’re now scaling.
If THEY scale up, they can achieve more sales by bringing on other salespersons, from which you get an even smaller commission on their sales, etc. The problem with this pyramid model is that it depends on the number of sales folks you have in your pyramid, and getting new people to sign up to sell for you takes a great deal of time away from your own sales. It’s a lot of work!
There are many ways to scale a business. To scale a business such as a laundromat, you could reconfigure your floorplan so that you could put in more washers and dryers. You could increase the hours that the laundromat is open for business. You could add a window into another room in which you would accept dry-cleaning orders. You could include a folding service. You could include a premium service where you would wash, dry, and fold the laundry for a fee, based on the weight of the clothing. You could set up a children’s playroom and wifi to entice new or overwhelmed mothers to come to your laundromat rather than go to another laundromat.
Or, you could buy another laundromat … and another … and another. Any business that you can keep growing in this manner is a business that you can scale. Franchising is another good example of scaling … but only if YOU’re the franchiser.
Waste Management scaled up by buying all the small garbage collection companies it could get its hands on. Amazon scaled up by moving from selling books to selling everything to warehousing much of what they sell to using their own trucks to deliver the products they sell.
One of my clients recently consulted with me about scaling his business by moving from a purely custom-build scenario to adding a product that is closer to a production model. In this case, I recommended that he should have another website to advertise that product separate from his main product. That way, he wouldn’t be cannibalizing his lucrative main product with the advertising of this less expensive product, which would appeal to a different customer base.
You don’t want to be restricted to a model where you’re selling your own time and you’re the only revenue-generating person in your company. There are only so many hours available to be sold, and every hour you sell has to carry the entire load of your overhead.
If, instead, you double your revenue-generating hours by hiring another person, you essentially get to cut in half or less the overhead amount that those hours must cover. If there are three of you, your hourly fee will cover even more of the overhead.
For example, if you work alone, spend 50% of your time selling and performing other necessary functions that don’t produce revenue, and charge $100 per hour, you might cover your overhead, but your fee might not leave you enough for your income needs. If there were two of you, you’d still cover the overhead, but it would cost you less than half as much per hour to do so.
Your assistant could probably generate revenue between 6 and 8 hours per day. If they produced revenue for 8 hours per day, you would cover your overhead at one-third the cost per hour that you do working alone. You could lower your fee or pay your employee more or cover more overhead or even give yourself a raise. That might be more reasonable. If a third person were to join you, you might be able to afford that other truck you need. Ultimately, you’ll want to get out of the billing-hours facet and just manage your people and projects … and your business.
When thinking about your business, always spend time thinking about how to scale so you’re not carrying all the overhead yourself.
I’ll never understand why some restaurants close at 2 p.m. and leave all that capital equipment and workspace to sit idle through the dinner hour. That’s the opposite of scaling. From a business perspective, they’re scaling down.
Find much deeper insights at ProfitPowerSeries.com. and AnatomyOfBusiness.com
Remember, you deserve to get paid.
Until next time.