Experience curve and economies of scale: growth arguments that convince investors

BCG invented the experience curve: every time production doubles, costs decrease by 20-30%. This is the magical concept that VCs love. Here's how to incorporate it into your pitch.

Experience curve and economies of scale: growth arguments that convince investors

There are two magical concepts that VCs and family offices love: experience curve and economies of scale. Understanding how these work will help you build much more compelling pitch decks.

Experience curve – growth stages for scaling

The BCG experience curve: The basis

The Experience Curve was invented by BCG in the 1960s. The concept: Every time your cumulative production doubles, the (real) costs fall by 20-30%.

Why? Four mechanisms:

Learning:Your teams become more efficient
Standardisierung:Processes are reproduced, not re-invented
Automation:Manual steps are automated
Supply Chain:You have better leverage with suppliers

The formula: Cost = Initial Cost × (Cumulative Volume)-b

Where b is typically 0.2-0.3 (20-30% cost reduction per doubling).

Practical example: SaaS

Imagine your SaaS initially had a customer acquisition cost (CAC) of €1,000. After 1,000 customers (first doubling) you can acquire with €800 CAC. After 10,000 customers: €400 CAC. After 100,000: €100 CAC.

This is Scale Effect in action. Investors love this because it means that the more we grow, the more profitable we becomewithout new innovation– only through Scale.

Economies of Scale: The Broader Concept

Economies of scale are broader than the experience curve. They can be:

Produktions-Skaleneffekte:Larger factories are cheaper per unit
Marketing-Skaleneffekte:Bigger ad spend has better ROI
Netzwerk-Effekte:Every new user makes the product valuable for everyone else
Daten-Skaleneffekte:More data → better ML model → better product

In a good pitch deck you show how your unit economics can be improved with Scale:

€10K CAC → €5K → €2K

This is extremely attractive for investors because it means: Your financing efficiency increases with every euro you invest.

Winner-takes-all dynamics

In certain markets, economies of scale lead to extreme concentration: the largest player becomes 10x more profitable than #2, which in turn becomes 10x better than #3.

Examples: Uber in ridesharing, Amazon in e-commerce, Google in search.

If you can convincingly argue that your market is a winner-takes-most market - AND that you can be the winner - you will get much more valuation.

Klassische Quellen

BCG (1970s):Perspectives on Experience
Henderson, Bruce (1968):The Experience Curve – Reviewed. Perspectives on Strategy.

Read alsoExperience curveandBalanced Scorecardfor more in-depth details about unit economics.

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