According to Investopedia, Economies of scale refer to the reduced costs per unit that comes from an increased total output of a particular product. The idea behind this is to ensure that by the time production increases, you are able to produce a unit at a much cheaper rate. The end game is the ability to boost production volume, reduce cost of production to the barest minimum, while increasing the profit margin to the highest maximum.
Some of the following factors are responsible for a company’s ability to boost the volume of production, while simultaneously reducing cost:
- Advanced and more integrated technology
- Specialization of labour
- Huge savings from profit and re-investment
- Bulk purchasing
- Mergers and acquisitions
- Spreading of internal function costs across more units produced and sold.
For example, the use of robots at an assembly plants shoots up the volume of production and in turn increases the profit margin over a considerable period. In the same assembly plant, the ability to delegate specialization duties would lead to increased speed and greater efficiency which would in turn lead to more profit over a period. With more profit in the bag, forward thinking business owners tend to save more than they spend while re-investing these savings into the business in order to increase production and in turn increase profit in the long run. With bulk purchasing, when companies purchase items needed for production in large quantities, it directly results in less spending on the cost of production and the resultant effect of profit increase. When mergers and acquisitions happen, it often results in a greater purchasing power, bigger workforce and as expected, greater yields. Same can be said when internal function costs of the company/establishment is spread across more units of goods that are produced and sold, it leads to an instant marginal increase in profit per unit items that are produced and sold.
All these factors put together would only be possible if there is a considerable injection of capital into the business, company or establishment, meaning that the rich who are oftentimes the business owners are the ones who can afford this and increase their profit margin, while the poor cannot even dream of it.
With finished products, bulk purchasing can help reduce costs for even the not so rich in the society, but the general excuse is usually that there are not enough funds to do so. However, a closer look at the situation reveals that it has become a thing of the mind, one that is subdued and has always believed that they can “NEVER” purchase things in bulk.
I run an SME data sharing business which allows me resell internet bundles at a much cheaper rate than what the internet service providers in my country offer subscribers directly. Having done this successfully for three years running now and practically turning this #10,000 business into almost a million naira worth investment, I therefore think I owe it a moral duty to share some of these tips that I have gleaned from personal experiences in this venture.
First, while purchasing, the millennial doesn’t think so much about saving costs, all he wants is an instant gratification of his present need or want, whichever may be the case. He doesn’t think about how he can save some money and time by engaging in bulk purchasing, instead he would settle for the smallest unit of the product/service as long as it satisfies his present need. For example, even though 10gig of internet bundle is worth #5000 and 1gig is worth #600, a millennial who on the average uses 10gig of internet bundle monthly would prefer to purchase it in bits of 1gig rather than buying it in bulk and saving costs in the process. It is this mentality that usually serves as the difference between a successful business person and one who is not.
When it comes to savings and investment, there is a lack of a savings and investment culture amongst millennials. Let us put this into perspective, saving a dollar a day, it would take a whole year to save $365, whereas a yeezy boost costs $300 and an iphone X costs $1000. Rather than save and investing in a venture that would pay for many iphone X and yeezy boost in the future, instead a millennial is more interested in impressing at the present and would even go beyond his present means to purchase them.
Talking about investments, the greatest thing you can invest in is yourself. Sounds cliché right? I know. However, every other form of investment you do or will be doing is attached to this basic form of investment which involves learning, unlearning and relearning. It’s been said that on the average, CEOS of major corporations read as much as 60 books a year, regardless of the fact that they have multi-billion dollar enterprises to run. So ask yourself, what exactly you are doing with your time that you cannot invest in yourself by studying, looking for ways to improve yourself and your finances. Take a crash course, get a specialized degree or professional degree so you can be more marketable to your employer. The biggest bet you can place is the one you place on yourself, that is certainly what investing in yourself is about and you are certainly going to win big if you do.
Rather than blow that extra cash, that bonus, that end of the year add-ons, why not invest it by buying stocks with it? Many persons think the stock market is very saturated right now, and as such might not mean plenty returns like they will desire. I’m not asking you to pour every extra cash you have into it, using dollar cost averaging you can invest in very little bits over a period of time, say a 12 months or even 5 years and more. With dollar cost averaging, when the market is high, you buy fewer shares and when the market is low, you buy more shares. That way, you end up having a lower average share price over time and it simply means more returns for you, should you decide to liquidate it.
Many will say stock market is too foreign and to complicated, how about real estate? You might be quick to say it requires huge capital, whereas there are plots of land in very good, developing areas that are far cheaper than your Iphone X or that prada bag you carry once in 3 months. The value of land never depreciates, except when there is war or natural disasters, and when that happens, even your designer bags might not survive it.
How about you try FGN bonds? With as little as 5000 Naira you can invest in them and be rest assured of receiving quarterly returns while your capital remains intact. It remains one of the most risk-free investments over time, because as long as there is an entity called Nigeria, you will always get back your money. You can also consider buying treasury bills, operate more like bonds but with higher interest rate and volatility, one thing you’re sure of however is your capital, so if you want more returns and are willing to take more risks, it’s a viable option to consider. If you’re tech savvy or willing to learn and devote some more time to studying the market, you can consider trading commodities or trading cryptocurrencies as well. Investment is no rocket science, and for the average millennial who is tech savvy and knows how to operate an android phone or ios, the options are replete, all it takes is those tiny bits of sacrifices and willingness to do the right things that will improve one’s lot financially.
The average millennial wants to eat his cake and have it, he wants to use the latest iphone and wear the most expensive brands, while simultaneously running a multi-million dollar enterprise. This fast life mindset is what has led many to engaging in wire fraud, so they can enjoy both sides without having to sacrifice so much for it. The sad reality however is, even Givenchy or Addidas didn’t go global in a day, it was a combination of repeated, painstaking efforts that made them the gobal brands we now aspire to today.
The attitude of the average millennial with respect to loan is also something to worry about. The default belief of the millennial is why take the pain to save when I can only start a business with borrowed funds. Borrowing at the slightest opportunity and taking loans as though with a mindset of not paying back is a recurring decimals among millennials. The preponderant borrowing mentality amongst millennials is a huge cause for worry, as it is directly related to the desire to save and invest. Many times, when they borrow from friends and family, they either do not pay back or they are forced to do so, albeit reluctantly. Sadly, this mentality is carried on into business and that is why when they borrow, they either lose the business or the collateral used in borrowing because they couldn’t pay back.
When the average millennial who earns a salary, what does he do with it? Oftentimes, he wants to live the celebrity lifestyle of wearing the latest designer shoes and sunglasses, carrying the most expensive bags and driving the most exotic cars, even when his earnings do not truly support it. Do not get me wrong however, this is certainly not to say you shouldn’t use quality products, far from it! Instead, it goes to emphasize the importance of avoiding spending more than you earn, as well as avoiding impulse buying. Before you buy that expensive designer bag next time, ask yourself, do I really need this? Can I get this same quality at a lesser price? Deep thinking such as this is what is responsible for the minimalist lifestyle that most wealthy entrepreneurs live. You would likely not come across a picture of Mark Zuckerberg or Bill Gates wearing an expensive designers Tees on a designer shoes with sunglasses worth thousands of dollar to match, not because he cannot afford them, but because he has groomed himself over time to always calculate the cost before purchase.
Creating wealth is not intuitive, it is learnt. (Inung Ejim, 2018) The average millennial is a social media freak and not a reader! Even if he studies and excels academically, he doesn’t read outside his comfort zone, and even if he does read, he reads about how steve jobs, Mark zuckerberg and Vitalin Buterin founded start-ups that have now become global brands. He doesn’t read to learn ways in which he can get into that market and put himself on the map. Even when he learns this, he lacks the will and the drive to do what is necessary to achieve excellence in that field. (Early mornings and late nights, discipline, resilience, patience, repeated failure and disappointment, and so much more sacrifices)
Forget what pastors and motivational speakers tell you, forget all the “if you can think it, you can do it”, if you do not really go out of your way to do it, you have only succeeded in wasting your precious time thinking about it. In more instances than none, if you haven’t failed in a venture, you cannot achieve success in the other. The success you later achieve would be as a result of time tested practices and constant business re-engineering and adaptability to present market conditions, all of which are not possible if you haven’t tried and probably failed previously.
True, the average millennial is faced with unprecedented challenges, and being a part of the most educated generation in history isn’t without its attendant problem of fewer opportunities for more persons. With the advent of deregulation, knowledge work and new technology, a rapidly changing marketplace and globalization, the African adage that “the sky is wide enough for all birds to fly without their wings touching” has never been more apt, all it requires is getting the right knowledge and the willingness to pay the price for success.