The e hustle 51: Scale Doesn’t Fix Profit. I'll Prove It.

You’re two years in.
You’ve built an impressive ecommerce brand.
Revenue looks great on paper… but somehow, your bank account doesn’t.

You’re paying yourself peanuts.
You’re working harder than ever, but you’re worse off than when you had a job.

Still, you hang in there, because someone told you that when you “scale,” it’ll all start to work.

“Economies of scale,” they said.
“Once you hit a few million, profit will take care of itself.”

Except it doesn’t.
And it never will.

I’ve been there myself, and I’ve seen it inside some of the biggest ecommerce brands in the country. As you grow, your profit margin doesn’t magically expand… it often shrinks.

The Real Costs in Your Opex (Operating Expenses)

The real costs? Wages and ads.

Those two line items make up the vast majority of your OPEX - usually 90%. 

 And they’re variable, which means they rise as you grow. Every good ecommerce CFO would set ads and wages as a percentage of your budget. In fact, many small business owners aren’t even paying themselves properly, which means if anything, your wage ratio will increase!

You want to grow? You’ll need more people to manage the volume.
Your ads? Well you typically set that budget as a percentage of your revenue - your MER.

That’s how ecommerce scales: your biggest costs move in direct proportion to your revenue.

So where exactly are these magical “economies of scale” supposed to come from?
Your rent? Your Shopify plan? Maybe your email software?

Even if you doubled your revenue, shaving rent from 2% to 1% of sales doesn’t change your life. It’s pocket change compared to your ad account or payroll.

The $3 Million Reality Check

Let’s make it simple.

Say your online store does $3 million a year.
You’ve got a 55% gross margin, so your COGS take up 45% of sales (I iinclude freight, merchant fees and so on in COGS for simplicity). 

Then you’ve got another 50% of revenue in OPEX — things like ads, wages, rent, and software.
Out of that OPEX, about 90% is variable (ads and wages) and 10% is fixed (rent, subscriptions, etc.).

So, in reality, only around 10% of your total costs are actually fixed.
Everything else moves with your revenue.

Now, if your business makes 5% net profit at $3 million — that’s $150,000 —
and your MER and wage ratios stay exactly the same, how big would you need to get to double or triple your profit margin?

The answer: massive.

Even if you scaled from $3 million to $60 million,
your profit margin would only climb from around 5% to 10%.

That’s 20× more sales, for only 2× more margin.

Why That Happens

Because in ecommerce, your COGS, ads, and wages all scale together.
There’s no magic efficiency that kicks in when you grow.

UNLESS - you do as I am suggesting, and actually get your ads under control early - I’m picking on ads because nobody is really overdoing it on the wages - if anything many of you are underpaying yourselves.

Your fixed costs (rent, software, etc.) get smaller as a percentage of sales,
but they’re such a tiny part of your spend that they can’t move the needle. These are the costs you are trying to scale away.

That’s why I always say it:
Scale doesn’t fix profit — efficiency does.

Where True Scale Lives

If you actually want economies of scale,
you’ve got to find them in marketing efficiency and team efficiency.

That means lowering your MER, not increasing it.
It means getting more sales from the same ad spend.
It means keeping your team lean as you grow.

When you lower your MER and maintain your revenue,
that’s when you start to unlock real scale, because now you’re selling profitably.

Growth without efficiency is just a treadmill.
The faster you run, the faster your money disappears.

Break the Cycle

If your business doesn’t work today, it won’t work tomorrow — not without changing your model.
Scale doesn’t fix profit; it multiplies the pain.

Get out of the trap. Break the cycle.

Until next week, 
Paul

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