Build a Scalable Business Model: Strategies and Best Practices

Every business idea needs a plan that allows them to succeed in a competitive market. However, not every business is scalable. Let's consider the business idea of becoming a personal trainer. This type of business is not scalable because you can only train so many clients at once. Your time and cost increase with your revenue.

But consider scalable business ideas. For instance, Netflix is a scalable business model because costs don't change as they get more subscribers, allowing them to increase profits without increasing costs to meet market demands.

Every scalable business model has key elements that set it apart from non-scalable business ideas. Let's take a look at these elements to help you find different ideas for scaling your business and what you'll need to make it happen.

Product/service offerings

Every successful business needs a product or service. However, what sets scalable businesses apart from non-scalable businesses are the products/services they offer. For instance, hairdressing is not a scalable business idea because you can only take on so many clients in a day.

However, a rental property business is a scalable business idea because your rental income will become profit once your mortgage is paid off, and rent prices increase every year, so your costs will stay the same with increasing revenue.

Target market

All businesses have a target market, whether or not they realize it. Your target market is a particular group of customers most likely to be interested in your product or service. Therefore, when you create a product or service, you have a particular consumer in mind. For instance, a marketing agency targets businesses. However, they may have specializations in some industries; you can find marketing agencies for B2B, B2C, eCommerce, and just about any niche out there.

Meanwhile, if you create a product like a new hairbrush for curly hair, your target market is individuals with curly hair. So why is the target market important for a scalable business? Targeting a specific market allows you to create a more focused product that meets its consumers' needs.

Additionally, having a target market in mind allows you to target specific individuals most likely interested in your product or services. Because you have minimal resources when just starting your business, having a target market in mind can keep your marketing costs low since you'll know exactly who to target with your campaigns.

Revenue model

Your revenue model is your plan for how you'll earn money and is closely related to your business model. For example, Netflix has a subscription model detailing how they earn revenue — by collecting monthly subscription fees from users.

There are several types of revenue models, including freemium models for software, retail and production models for an eCommerce business and brick-and-mortar stores, wholesaling, and so forth. Believe it or not, how you determine your revenue model can affect your business' scalability.

Any one of these revenue models can be scalable, depending on your business plan. For instance, a production model is when a company creates a product and generates revenue when customers pay for it. This business model isn't inherently scalable, but it can be if you do the groundwork to ensure you can keep up with production when your business scales without necessarily increasing costs too much.

Customer acquisition strategy

Your customer acquisition strategy details how you attract and convert customers. Every business needs a strategy, but what makes a scalable business different? Scalable businesses have a customer acquisition strategy that keeps their costs down while increasing their conversion rates. Of course, this is easier said than done. A robust customer acquisition strategy may consist of trial and error until you find ways to reduce your customer acquisition costs.

Let's say you run an eCommerce business selling knit hats and invest in social media advertising to attract customers. When you do all the math, you find that your customer acquisition cost is $10 while your products sell for $20. This means that you're taking profits of only 50% of the retail price of your items. In this case, your business is not scalable.

Even if every other aspect of your business can handle scalability and keep up with production, if your business grows, your customer acquisition strategy and total costs of your marketing efforts will prevent you from earning revenue that keeps your business going.

Every business is different and needs a different customer acquisition strategy. However, if the costs of your strategy are too great, they can eat into your profits, which may affect other areas of the business and prevent scalability.

Resources and infrastructure

Every scalable business must be able to scale and grow by having the necessary resources and infrastructure. Most small businesses start small so the business owner can find ways to increase profits and scalability over time.

For instance, you can start a baking business in your kitchen, selling your products to friends, family, and local customers. However, if you want a business that increases in growth, you'll need an industrial kitchen that allows you to create thousands of products a day.

If you stay in your kitchen, build a website, and invest in a robust customer acquisition strategy, you'll need to keep up with customer demand. Eventually, this may mean being able to hire employees, something you can't do if you're working out of your own kitchen.

Having the resources and infrastructure to expand your business is crucial. You can think of these later once your business starts to take off. However, it's much more difficult to scale a business and put processes and infrastructure in place after you've already experienced growth and increased demand.

Strategies for scaling your business model

As we've mentioned, any business model can be scalable, but not every business is scalable. Some businesses have finite resources, and there's nothing wrong with that. But if you want a scalable business, you'll need to create a plan for how you'll scale and what happens when there's an increase in demand for your products or services.

Once you have a plan in place, you can start finding ways to scale your business. First, of course, you should always determine whether you're ready to scale. Yes, having more sales is great, but you could quickly lose momentum if you don't have enough products in stock.

If you're ready to scale your business and have the necessary infrastructure and resources in place, you can follow these strategies for growth:

Increase your customer base

To scale a business, you must increase revenue. The only way to increase your revenue is to grow your customer base. There are several ways to do this, and the method you choose will ultimately depend on your business strategy. For instance, if you want to increase your customer base quickly, you can offer a limited-time deal or decrease your prices to attract more customers.

Of course, price decreases aren't always the right way to go for all businesses. How you increase your customer base depends on several factors that can impact your overall business structure, so it's worth considering the best way to increase the number of customers you have without decreasing the quality of your product or services.

Expand your product/service offerings

Expanding your product and service offerings is one of the best ways to scale because it means you can do more. For example, a marketing agency might increase its service offerings to attract more customers and, in turn, sell more.

Meanwhile, another business might charge more for premium products or services. For instance, software companies might offer a free or low-cost solution for their product. Once customers realize they need the product, they'll pay more for premium features.

Another scalable business idea is an eCommerce company. Regardless of what you sell, expanding your product offerings can help you attract new customers and increase revenue, as long as you have the infrastructure in place to handle this type of growth, which means having increased warehouse space for inventory.

Enter new markets

Expanding into new markets can help you attract more customers, giving you more opportunities to sell. For instance, Tesla expanded into the home energy storage industry. As you already know, Tesla makes electric vehicles. However, by entering an adjacent market, they were able to increase sales while entering a multi-billion dollar industry using its existing technology to create a new product for a different market.

Of course, there are also businesses that entered new markets and abandoned their old ones. The makeup brand Avon was originally a book company with the same direct-selling business model. However, they expanded their offerings to personal care products using the same selling technique and abandoned books altogether.

These two businesses prove that entering new markets can help you scale your business by attracting similar but new customers or finding a completely new market using the same strategies to increase profits and sales.

Diversify your revenue streams

Giving your business multiple ways to earn money can mitigate risk. An eCommerce company depends on customers purchasing its products and coming back for more. Unfortunately, consumers can be distracted by the next big thing and follow trends that prevent them from coming back to your business.

The best way we've seen an eCommerce business combat this is by offering subscriptions. Nowadays, you can get subscriptions for everything from your coffee to beauty products and more. In addition, diversifying your revenue streams can help you predict your revenue easily over time because you know how many people are signed up and exactly what they're paying every month.

There are many ways to diversify your revenue streams, from adding subscriptions to taking your business online and offering online courses. How you choose to do it will depend on your overall business model. For instance, a personal trainer might offer online training courses, while a brick-and-mortar shop may start selling products online.

Franchise your business model

Franchising your business model is a great way to increase profits without necessarily spending more. Instead, you'll create a successful business and set it up in a way that others can do it, too. For example, you can open a successful ice cream shop and make other business owners want to do the same. However, as a franchise, you'll need to provide them with resources, products, and overall support to ensure a franchisee's success.

Franchising your business can help ensure you capture the market before anyone else can by growing your business across the nation without having to purchase buildings yourself. Instead, you'll have financial leverage and human resources that allow you to compete with larger corporations since franchisees assume most of the business responsibilities.

Common mistakes to avoid when building a scalable business model

Creating a scalable business model means increasing revenue while keeping costs low. Unfortunately, it's not a good option for every business or business owner. If you have a business idea, your main priority might not be to determine whether it's scalable; that might not even be your ultimate goal.

However, creating a scalable business model from the beginning can ensure you're set up for growth when it happens. Here are common mistakes to avoid when building your scalable business model:

Failing to identify your target market

Every successful business knows who its target market is, allowing them to effectively market and advertise to them. Unfortunately, failing to identify your target market means you'll end up spending more on marketing than you need to.

A shotgun marketing approach is never effective and can leave you with higher customer acquisition costs that prevent scalability.

Neglecting to develop repeatable processes

Automation is crucial for scalable businesses because it saves time while increasing efficiency. But even if your business doesn't use automation, you must have repeatable processes. If you're the baker we talked about earlier making cookies from their kitchen without a recipe, your process isn't repeatable. Instead, you'll have cookies that taste great, but they don't all taste the same.

If your baking business grows, you may have to hire employees to help you bake, but since there's no recipe, no cookie will taste the same. Additionally, your employees won't be able to repeat your process, so your customers won't get the same quality product each time.

Overextending resources too quickly

Overextending resources too quickly can mean anything from spending more on marketing to increase awareness of a new product to overworking your employees. Both of these things can be detrimental to your business.

For instance, overworking your employees because you simply don't have the cash to hire more can lead to mistakes at work that impact the success of your business. Meanwhile, spending too much money during periods of growth that may not last can leave you strapped for cash when you actually need it.

Focusing too much on short-term success

Many businesses have periods of increased success. For example, your business might go viral at any time if it attracts the right consumers. One minute you can be viral on social media, and the next it seems like your customers have forgotten you.

Short-term success can help you set the foundation for a scalable business, helping you determine what you need to do and learn from your mistakes. However, focusing too much on short-term success instead of long-term growth can hurt your revenue. You won't be viral forever, so you must have a plan in place for attracting more customers to help you scale your business.

Don't ignore the importance of culture

Scaling your business also means hiring top talent and being flexible. Your employees are the lifeblood of your business, and without them, you wouldn't be able to process and fulfill orders, maintain a website, or provide customer support.

All your resources, from your workers to the tools you use, are essential to your business's growth. Mailchimp can help you take your business to the next level with a suite of marketing tools designed to help you scale your business and increase profits.