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What is critical mass?

Critical mass is the size that a firm needs to achieve so it can compete competitively and efficiently with its competitors. A company must reach a certain size for it to grow and operate efficiently until the firm reaches the point of profitability.

How critical mass works

There are several factors when referring to critical mass. These factors include revenues, market share, resources and staffing. A firm must reach the critical mass for each of these components or factors so that is can start operating at its most efficient point or the point that the firm is already making profits.

For example, company A which is a start-up firm is getting consistent growth and is gradually increasing its share in the market. The firm’s consistent revenues have resulted in bigger capital that has allowed the firm to hire more staff.

This means that the productivity level of company A has also improved and eventually it is making more profits that exceed the firm’s expenses. Company A, then has already achieved critical mass as it has obtained the needed man power and capital to increase production and revenues and is now making revenues.

Determining critical mass for a business entity is important given that a firm must be able to plan its resources very well. Reaching the critical mass is essential because it can determine whether a company will merely survive or thrive in a very competitive market.

Firms however must not be complacent once they have reached critical mass since the ultimate goal of any business is to maximize profits. A company that has already reached its critical mass will need to find more ways to grow its business and expand.

It may want to use the revenues it has been making to add more capital and human resources so that the business can expand.

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References :


[0]http://www.investinganswers.com/financial-dictionary/economics/critical-mass-623
[1]http://www.businessinsider.com/components-of-startup-critical-mass-have-changed-2011-2
[2]http://commons.wikimedia.org/wiki/File:Market_Share_Smartphone_OS_in_2nd-Q-2009-EN.svg

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Posted by on Oct 17th, 2014 and filed under Business. You can follow any responses to this entry through the RSS 2.0. Both comments and pings are currently closed.