Economies of Scope: Definition and Examples

Economies of scope is an economic principle that describes how businesses can reduce unit costs by using the same production infrastructure to produce different items. For example, a haircare brand might use the same machinery to assemble its shampoo and conditioner lines, instead of two separate machines for each product.

This article explains economies of scope, walks you through the formula and examples, and covers how to decide if it’s the right strategy for your business.

What is economies of scope?

Economies of scope is an economic principle describing the per-unit production cost savings a business gains by producing a range of products using shared resources. It may use the same equipment, team, or manufacturing process across multiple products, instead of dedicating separate resources to each one. 

In other words, the more different-but-similar goods you produce, the lower the total cost to produce each one will be.

Economies of scope formula

One way to conceptualize economies of scope is through the following cost relationship:

C(Q1+Q2) < C(Q1) + C(Q2)

Where:

• C(Q1 + Q2) is the cost of producing products/services Q1 and Q2 together
• C(Q1) is the cost of producing product/service Q1 independently
• C(Q2) is the cost of producing product/service Q2 independently

Examples of economies of scope

To illustrate how economies of scope work, consider Amazon. They built a custom computing infrastructure for their marketplace and then adapted it to sell to other businesses through Amazon Web Services (AWS).

Peak Design took a similar approach. They launched a specialist line of bags for photographers, then later expanded to reach non-photographers with another bag style.

The example below considers a shoe manufacturer producing men’s and women’s sneakers. Adding a children’s line of sneakers would increase economies of scope because they can use their existing production process, equipment, supply chain, storage facilities, and distribution channels to create a new product line. 

The resulting cost to produce multiple products is lower than if three different companies each produced a line of men’s shoes, a line of women’s shoes, and a children’s line.

If you plug some numbers into the formula above, here’s how it plays out.

Separate production costs:

• Cost to produce men’s sneakers: $200,000 per month.
• Cost to produce women’s sneakers: $180,000 per month.
• Projected cost to produce children’s sneakers: $150,000 per month.

Joint production costs:

• Cost to produce men’s, women’s, and children’s sneakers together: $450,000 per month.

Now, to apply the formula:

• C(Men’s + Women’s + Children’s) < C(Men’s) + C(Women’s) + C(Children’s)
• $450,000 < $200,000 + $180,000 + $150,000
• $450,000 < $530,000

Now, to calculate the percentage savings (PS):

• PS = (Savings / Total Separate Production Cost) x 100
• PS = ($80,000 / $530,000 ) x 100
• PS = (0.1509) x 100
• PS = 15.09%

So, by producing men’s, women’s, and children’s sneakers together, the company saves approximately 15.09% compared to producing them separately.

Economies of scope also reduce the average total cost of production for all your sneaker product lines, not just the new children’s line. You can extend your resources to make more products for the same target market, helping you keep driving costs down.

How to achieve economies of scope

Here’s how to achieve economies of scope with your product manufacturing process: 

1. Flexible manufacturing

Flexible manufacturing lets you make different products using the same raw materials or manufacturing facilities. For instance, if you own a business that makes custom shirts, you could use a byproduct strategy that takes excess fabric left over from your production processes to make headbands or handkerchiefs.

Pulp Pantry shows how businesses can start with a byproduct strategy. They turn vegetable pulp, which is a byproduct of juicing, into crispy veggie chips. Similarly, Issues Magazine Shop turns unsold magazines into a second revenue stream by running collage workshops that reuse the print waste. 

2. Shared inputs

Inputs like land, labor, and capital can support multiple products or revenue streams, reducing operating costs. For instance, if you own or lease a warehouse to store your products, you could rent or sublease a portion of it to store goods for another business.

Bloom Bras takes this approach with shop-in-shop events at Macy’s and Title Nine stores. Founder and CEO Elyse Kaye says it cuts down on their spending, giving the feeling of exclusivity.

“We then promote through our community of over 125,000, bringing new local customers into the location,” says Elyse.

Selling across multiple channels is also a shared input strategy. For example, on Shopify, you have one unified commerce platform that powers your ecommerce website, social media storefronts, in-person events and stores. It’s helped The Conran Shop halve their total cost of ownership.

3. Mergers and acquisitions

Economies of scope exist when companies make horizontal acquisitions of companies producing similar or complementary products. It’s a big market: Statista found merger and acquisition (M&A) deals totaled more than $4 trillion in 2025.

Because they use similar raw materials and production processes, two merging firms can reduce costs by using the same assembly lines rather than producing products separately.

Economies of scale vs. economies of scope

Economies of scale reduce costs by increasing volume, while economies of scope expand product lines using the same resources.

While both reduce the cost of goods, they do so in different ways:

The two concepts aren’t mutually exclusive. For example, a clothing brand might order multiple units of a jacket to get bulk pricing from their manufacturer (economies of scale) while using that same machinery to create swimwear (economies of scope).

Is economies of scope right for you?

If you’re looking for economies of scope, like expanding your product line, you have to make a strategic decision. 

Say a business is known for their trendy, handmade dog sweaters and their reputation depends on these products. They would have to decide whether to specialize in dog fashion (economies of scale) or expand to other animals like cats, pigs, and goats to appeal to a broader audience (economies of scope).

Some criteria to consider when evaluating whether to pursue economies of scope include:

• Brand identity. Consider how diversification aligns with or affects your established brand reputation. Coop Sleep Goods, for example, wanted to be known for one thing. “The focus has always been on the pillow because if that’s good, people will buy and trust our brand that we're doing the right thing and making the best possible product. That will spread into other products,” Cofounder Jin Chon says.
• Market demand. Investigate the demand and customer interest for your new products or services. In a 2025 Shopify survey of store owners, about 65% waited for customer demand as their scaling signal.*
• Cost-benefit analysis. Evaluate the costs of diversification against potential revenue and profit benefits. The same Shopify survey found that 20% of merchants wish they had waited for consistent cash flow before scaling, making it the top regret.*
• Supply chain considerations. Determine if your supply chain can accommodate new products or services. Shopify’s multilocation inventory management tools help you track where each item is. 
• Competitive positioning. Understand how the expanded scope positions you within the competitive landscape. “It’s important to study competition,” says Morgan Cros, founder of Original Duckhead, in a Shopify Masters interview. “But you don’t want to be bogged down by that. You don’t want to be too focused on what other people are doing. You want to do you.” 
• Sustainability. Factor in the long-term sustainability and impact on your business growth. In Sustainable Jungle’s 2026 report, 61% of consumers said they buy sustainably because they feel it’s the “right thing to do.” 

*Based on a 2025 survey of 500 Shopify merchants conducted in English across Australia, Canada, the United Kingdom, Ireland, New Zealand, and the United States. Respondents were established merchants with two or more years on the platform. Results reflect the experiences of this specific sample and may not be representative of all merchants.