Economies of scale... there's a textbook example of a term everyone claims to understand but few people do, at least not in a meaningful manner.
Leaving definitions and the theory dimension aside, economies of scale is a term that refers to situation in which as your business grows, you are able to lower your cost per unit.
Examples include anything from scaling a small business to the negotiation power of let's say Walmart. In other words, a good explanation with respect to economies of scale has to revolve around the fact that under certain circumstances (very important subtlety here!), the growth of your business can help you develop an edge when it comes to production costs.
The "magic" of economies of scale takes place through, for example, the fixed costs dimension. The more orders you have, the more you can take advantage of the fact that unlike variable costs, fixed costs do not go up along with your volume.
However, please note that economies of scale do have their limits. Whether we're talking about your local market becoming saturated, a supplier running out of inventory or other examples, it's important to understand (and the video will explain this aspect) that we are in no way talking about a "universal panacea" here :)
9 сен 2024
