What Is Minimum Efficient Scale (MES)?

By Kristi Waterworth – Updated Jun 17, 2025 at 12:06 AM

Key Points

MES identifies the most cost-effective production scale, aligning costs and output efficiency.
Beyond MES, production costs rise due to increasing bureaucracy and inefficiency.
Understanding MES helps investors gauge optimal company growth and investment timing.

When you own or invest in a company that produces things, it's important to be able to see just how much it costs to produce each item, as well as where efficiencies can be improved. Metrics like the minimum efficient scale (MES) can make it easier to determine if you're at peak efficiency.

Loading paragraph...

Inside of a factory with assembly line. — Image source: Getty Images.

Loading image...

Loading paragraph...

Bureaucratic

Overly focused on rules, procedures, and formalities, often resulting in inefficiency or delays in decision-making processes.

However, more workers need more bosses, more bosses mean more bureaucracy, more bureaucracy means more offices, and all of these new people mean less efficient communication and higher overhead costs per item that cannot be avoided. This is the point where you've entered the diseconomies of scale, where producing more is actually costing you more than when you produced fewer items.

Related investing topics

Loading paragraph...

How Artificial Intelligence Is Used in Manufacturing

Learn about the wide range of ways manufacturers are taking advantage of artificial intelligence.

How to Calculate Total Stock Returns

Total returns can help compare the performance of investments that pay different dividend yields.

How to Calculate Direct Labor Rates in Accounting

Tracking and managing direct labor rates can help a company maximize efficiency.

Latest & Upcoming IPOs to Watch in 2025

Newly public companies can be a great place to invest -- with some caveats.

Loading hub_pages...

Loading paragraph...

About the Author

Kristi Waterworth has been a contributing real estate and financial expert at The Motley Fool, covering real estate, investing, and personal finance topics, since 2020. Kristi has been interviewed by various TV media outlets and podcasts for her real estate investing expertise – from residential real estate to digital real estate and everything in between. Kristi’s journalist career spans over 25 years, and she has written about real estate investing, homeownership, and home construction specifically for the last decade. She was also previously a licensed Realtor and general building contractor before the Great Recession and housing market collapse. She holds a bachelor’s degree in American history from Columbia College in Missouri.

TMFMaldivesBlue

@MaldivesBlues

The Motley Fool has a disclosure policy.