Companies that can’t grow with their customer base have an upper limit to the amount of revenue they generate. While those that can adapt to increasing demands are able to reach infinite heights. Whether you’re thinking about launching an online business, or you’re trying to figure out how to take yours to the next level, do a scalability analysis. A scalability analysis will help determine how viable your business model will be in the long run.
Here are five characteristics of a scalable online business.
1. Sound customer-acquisition cost ratio
Every customer you get costs a certain amount to acquire, even if the cost is indirect. For example, you might spend money on online ads to drive new customers to your website. Divide the cost of the campaign by the value of new customers it brings you to get the customer-acquisition cost (CAC).
The ideal CAC ratio is 3:1, meaning that the value of your customers should be three times the expense of acquiring them. If you spend $1 per customer and make only $2 per sale, your profit margins are too slim. To improve the margin, reduce the amount you spend per customer or increase your prices to realize growth. Today, the influence of social media and search marketing has allowed online businesses to bring in customers at lower costs. These kinds of approaches could improve your CAC ratio.
2. Highly automated systems
Technology has the power to reduce expenses, increase productivity, and minimize risk. Whether you automate shipping, banking, social media posts, or sales leads, the move toward automation allows you to save time – and, as they say, time is money. For example, automating lead generation and pushing prospects down a sales funnel, keeps you from wasting energy on leads that are unlikely to purchase. Instead, automation allows you to garner more legitimate customer opportunities.
Automation can come in many forms and can be as simple as choosing a more-automated phone system. Start with the basics, but keep in mind that companies that undergo a full digital transformation are more equipped to grow at faster rates.
3. Business services that can grow with your company
You need a number of services to run your online business, not the least of which are your internet and phone services. Make sure your service provider can handle the demands of serving customers (and employees) at a higher volume. Reliability and flexibility are paramount to scaling an online business — outages or bandwidth issues translate to lost sales and dissatisfied customers.
4. Loyal customers
Which brings us to our next key factor: your customers. One of the most overlooked yet most powerful aspects of growing a business is customer retention. According to Adobe, a massive 40 percent of an ecommerce store’s revenue is created by only 8 percent of its customers. Upselling is an estimated 20 to 35 percent more cost-effective than finding a new customer. A regular customer that comes back week after week is more valuable than a brand-new customer, with their first-time CACs. If your business has high customer retention, then it can be scaled more easily — you can focus on lead generation with a steady, reliable base to build upon.
Let’s face it — small business owners need to be scrappy. You need to stay on your toes and make use of every dollar earned. This means constantly assessing and re-assessing where money is spent, how to cut costs, how to bring in and keep customers, and even which products and services you offer. When you can quickly pivot and respond to the trends in the market, you keep your business in the running. Being locked into a long-term lease or manufacturing contract, for example, could limit your ability to grow.
If your online business has these characteristics, congratulations — you’re well poised to scale your company to widen your reach and achieve new heights! If you struggle with your scalability strategy, work toward these ideals and watch for the results.
Patrick Hearn is an Atlanta-based tech writer for Comcast Business who also runs his own small business. When not researching the latest business solution, he can be found at the latest coffee shop trying the newest pour-over.