when a company s operating margin exceeds the average for its industry it is said to have a competitive advantage meaning it is more successful than other companies that have similar operations while the average margin for different industries varies widely businesses can gain a competitive advantage in general by increasing sales or reducing expenses or both 
boosting sales however often involves spending more money to do so which equals greater costs cutting too many costs can also lead to undesirable outcomes including losing skilled workers shifting to inferior materials or other losses in quality cutting advertising budgets may also harm sales to reduce the cost of production without sacrificing quality the best option for many businesses is expansion economies of scale refer to the idea that larger companies tend to be more profitable a large business s increased level of production means that the cost of each item is reduced in several ways for example raw materials purchased in bulk are often discounted by wholesalers 