Growing or Scaling your business – which is important?

by Ecommerce success

When it comes to business strategy, the terms “growth” and “scaling” are often used interchangeably. In fact, many people use them to mean the same thing. But as is always the case, details matter. There is a major difference between these two terms, and having a crystal clear understanding of what each one means will help you make better decisions about your business strategy going forward.

Growing your business

Now that you know what growing your business is all about, let’s talk about how to do it. Growing your business means increasing profit per dollar spent. The key here is spending less money than you’re making. Your margins are the difference between how much money you bring in and how much goes out:

  • Profit margin = Income – Expenses

In order to grow your company at a steady rate, focus on increasing this number by optimizing cash flow and margin development. While scaling may sound like something that happens over time (like growing taller), it’s actually a phase of growth—a series of steps designed specifically for maximizing profits through expansion beyond current capacities or markets.

Scaling Your Business

If you’re an entrepreneur who’s been growing your business, you should know that scaling is the next step.

Scaling up your business means increasing revenue and profit. It can be done in a number of ways:

  • Increase the number of customers
  • Improve conversion rates
  • Increase average order value (AOV)

Focus on Margins and Cash Flow

To grow a business, focus on margins and cash flow. The key to growing your business is understanding the difference between profit and sales.

Profit is what you make after paying all costs of doing business. Sales are the money you bring in from customers. Profit is great, but if it’s not matched with positive cash flow, things can quickly go south. The cost of goods sold (COGS) includes everything required to produce an item or service: materials, labor, overhead costs like rent or utilities, taxes and fees associated with production (like insurance), and more. COGS represent the total amount that must be paid before any revenue can be generated by selling a product or service; therefore, it’s critical for businesses to keep track of their COGS so they know how much it costs them to sell each item or service they provide—and how much profit they’re making after paying these expenses out-of-pocket before any money comes back into the company as gross income (income before taxes are taken out).

Margin Development Is a Phase, Not a State of Being

Margin development isn’t a state of being, it’s a phase. We’ve all been in situations where we have the same amount of money coming in as we did last year, but the costs are higher than expected. So what do we do? Well if you’re like most people that I know, your first instinct is to cut costs. But here’s the thing: if you want to grow your business over time (and who doesn’t?), then cutting costs is not going to help you get there. In fact, cutting costs actually decreases profitability because when sales go down so does revenue and with less revenue there are fewer dollars left over for profit after paying all the bills—and there goes any hope at ever scaling up!

Growth is about increasing profit per dollar spent. Scaling is about margin development.

Growth is about increasing profit per dollar spent. Scaling is about margin development.

It can be easy to get caught up in the excitement of growth, but you have to keep in mind that a company’s primary objective should be maximizing profits. Growth does not equal success unless money makes it into your bank account! When your focus shifts from growing revenues to scaling revenue—and with it, revenue growth—you’ll see an increase in profitability as well as overall company value.

As you scale, it’s important not just to maintain profits while scaling but also to expand margins by improving processes and streamlining operations through efficiency initiatives or re-engineering projects like supply chain management, finance & accounting systems integration or even product manufacturing technology upgrades (think robotics).

Conclusion

There is a time for growth and a time for scaling. As your business expands, you’ll need to understand the difference between these two phases so that you can ensure success in both. By focusing on margins, cash flow, and long-term outcomes, you’ll be able to make the most of each phase of development and avoid costly errors that can impact your company’s future.

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