in our second episode we'll be talking

about economics of scale and how this

principle defines the cost of your other

services stay tuned for the second

episode let's start with learning

objectives the goal of this episode is

to help you to understand the principles

of economies of scale and how this

principle explains the cost of other

services and to explain that principle I

will use a simplified example using a

delivery company that delivers a

packages to its customers and you start

your own company you usually start at

very small scale for instance by

purchasing free delivery trucks when you

do that you will need to first of all

buy them and since the company is very

small and you're just starting you most

likely make individual purchase for each

of those cars let's imagine you paid

$10,000 for each regardless if those

cars are used or not you will need to

spend some money on the maintenance of

those cars because your company is very

small you cannot make any contracts you

will need to pay individually for each

repair each maintenance that you need to

perform on your own cars each car of

course needs to be insured so that's

additional cost that you need to make

individually and as you can imagine

there will be plenty of other costs that

you will need to incur when running your

own company based on the cost that you

need to incur and the amount of the

customers that you have you will need to

calculate the price of your service in

order to stay profitable and stay on the

market what price is called price per

unit so at price that you need to charge

for the delivery of your package or your

company to stay profitable - let me

explain to you what happens if your

company grows in size if your scale will

go from free cars for instance 300

because your company is already big you

might be able to buy your house in bulk

on the dealership at the discounted

price instead of buying them for 10,000

maybe buy them for nine again for

maintenance you will be able to sign

some contract with some car repair shop

again lowering the price of the

maintenance required for your cars same

goes for insurance because you can buy

insurance in bulk

and if you have some shared services

maybe hire some additional stuff to

maintain your company you will be also

able to reduce price per car that is

required to maintain your company

because the scale of your company is

much greater than before you are now

able to handle many more customers

without sacrificing the quality of your

service allowing you to lower the price

per unit do you get more benefits

internally by having large company you

are more efficient operationally and you

can share those benefits with your

customers by reducing the price per unit

in this case this will also make your

company much more competitive on the

market making sure that you grow even

further so to quickly summarize as your

company grows your price per unit lowers

because companies aren't getting more

efficient at what they're doing to have

a small company your price per unit will

be quite high if you have medium company

your price per unit will be better but

still at quite medium range and if you

have very large companies your price

will be quite low and very competitive

on the market and this principle

perfectly describes what is happening

with the cloud as the cloud grows and it

has more customers the price of their

services will go down because big

companies like Microsoft will get more

efficient at what they do in case of

Microsoft it will get more efficient on

building new data centers getting better

prices for the hardware there of course

will be Hardware advancements which will

again lower the price and when this

happens and my crystal wants to stay

competitive the prices of the services

that it offers will also go down and

that's really it this is how economies

of scale work and how they drive the

cost of your other services or this

episode again go to my website - episode

2 check out the study cheat sheet and

maybe take a practice test and that's it

for this episode thank you guys for

watching if you like what I do support

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