Examples
Factories to produce more goods.Data centers to produce more services.Retail locations to sell more products.Building out a patio in front of a restaurant.Alternatives
Capacity expansions can represent significant up front investments particularly in industries that require economies of scale to be competitive. For example, it's typically not cost competitive to build a small data center as they need to be a certain size to be efficient. In such cases, outsourcing may be considered as an alternative to capacity expansion.| Overview: Capacity Cost | ||
Type | ||
Definition | Costs required to increase your business volumes beyond a constraint of your fixed assets. | |
Significance | In many cases, your fixed costs stay the same as your revenues increase. Capacity costs are the exception, whereby your fixed assets reach a limit and need to be expanded or upgraded. | |
Related Concepts | ||
