[kd5bjo]

Your reasoning looks right if your employees actually are at 100% utilization. If they’re not, however, the marginal cost to the shop of labor is 0. (1) Thus, it’s better to prefer the option that lets you charge more labor hours when you’re light on jobs.

For most brick-and-mortar shops, it sustainability, not scalability, that dominates. If you’re tooled up assuming the market will stay hot, you’ll struggle when the inevitable downturn comes. On the other hand, if you can stay break even at 50% of normal volume, you’ve got a chance to ride through a recession with your business intact.

The comparison to software breaks down when you’re talking about products, because the shop is a reseller; there’s a pretty hard limit to the amount of retail markup the market will bear before competitors crop up.

(1) As it turns out, this isn’t completely true; see the other reply.