- The procurement of inputs or goods for resale, where you pay higher prices as a result of not being able to buy in bulk,
- Your production processes, where the quantity of output produced is below the optimum level,
Operating at a smaller scale can often mean higher costs. Typically as businesses increase their scale of production, and can for example buy goods in bulk at a wholesale discount, they are able to reduce their costs and realize economies of scale.
Economies of scale refer to the cost benefits that an organization enjoys as a result of its scale of operation. As a small business owner, however, it is still possible for you to realize economies of scale. Here are a couple of ways:
- Joining Forces: Do you know other small businesses in your area that require similar inputs? Team up with them and order in bulk! By pooling your input needs together, it’s possible to generate enough demand to warrant bulk discounts
- Strategic Sourcing: Try sourcing from other small businesses, which are willing to offer you discounts in exchange for a guaranteed market for their goods.
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