Scaling too fast can lead to unsustainable growth, causing business operations to crash and burn. This is something a startup actually can’t afford, no matter how alluring rapid growth appears to budding businesses. A big reason this happens is when you overlook the cost of sales. While founders and business owners understand cost of goods sold (COGS) and present them in business plans, they often fail to appreciate another crucial cost – the cost of sales.
Many things have to happen between a product or service being created and it being sold. And if you don’t account for the cost of these things, you’ll find yourself struggling to maintain those sales. For instance, consider being presented with a business deal to sell your products in a new market. This entails additional selling expenses that you can’t afford, but you overlook them and sign the deal. You then find yourself at odds over making those sales happen because you can’t pay for the extra sales people, local advertising etc.
Ultimately this results not only in loss of revenue, but damage to your reputation as well. Recovering from both is not guaranteed. Read on to see how startups that ignore cost of sales set themselves up for failure. So is the notion of “rapid growth” just a trap? Not necessarily. So long as you give due attention to cost of sales, you can push your startup through numerous growth spurts. Let the numbers – including all relevant figures like cost of sales – guide you to sustainable success.
Credit: entrepreneur.com
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