A scalable business model is also a simple concept. In other words, the operating margin increases as the company's revenues grow. Technology's greatest achievements have all been associated with scalable business models. Another way to think about scalable models is to look at a company's fixed costs versus variable costs. Fixed costs are costs that a company incurs whether it sells or not.
Variable costs are costs that a company can control, or which it incurs as it makes sales.
The fixed costs should be ignored, so long as you believe that revenue will be large enough to exceed the fixed costs. Not Economy of Scale A scalable model is not the same as economy of scale. The phrase economy of scale means that a company's variable costs become lower as the company gets bigger. In addition, fixed costs can be spread over a greater number of units sold. This helps earnings, but economy of scale does not ensure that operating margins increase as revenues increase.