Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Critical Mass

What it is:

Critical mass refers to the size a company needs to reach in order to efficiently and competitively participate in the market. This is also the size a company must attain in order to sustain growth and efficiency.

How it works (Example):

A company's critical mass is determined by the size of its staff, resources, revenues, and market share. Once these elements reach the size that enables a company to operate efficiently, it is said that a company has reached its critical mass. Critical mass is the point at which a company becomes profitable.

To illustrate a company's critical mass, consider Company XYZ which was recently formed and has been experiencing steady growth and increasing strength in the market. The company’s steady revenues allowed Company XYZ to invest in more capital and to hire additional employees. XYZ's productivity subsequently increased and their revenues exceed their expenses: XYZ then becomes profitable. The company is said to have reached its critical mass, since its capital and human resources have reached a size at which they can sustain themselves through productive efficiency.

Why it Matters:

A company's critical mass is important to consider because it can mean the difference between thriving and surviving in a market environment. A company that sustains profitability is safely above its critical mass.