Coming up with a great business plan does not always guarantee success.
Before moving forward with business plans, it’s a good idea to learn as much about the chosen industry as possible. Entrepreneurs need to look at the size of the market, the level of competition, and the average net profit margins.
It’s the last detail that provides a chance to look at the profitability of various industries.
A financial information company, Sageworks, has taken the leg work out of this task. They regularly analyze the economy, offering detailed reports on the state of the business world.
This includes a closer examination of the most and least profitable industries.
Examine the top 10 industries that are the most profitable for small business – and find out which industries are the least profitable.
At the top of the list of industries with the lowest average profit margin is the oil and gas extraction industry.
Even though the oil industry has experienced a rebound in 2016, companies are still dealing with the price drops that started in 2014. Though, the oil industry is not necessarily an industry for “small businesses”.
Depending on your definition of a small business, there are several contenders for the least profitable industry.
• Beverage manufacturing
• Grocery wholesalers
• Lawn and garden stores
• Grocery stores
• Automobile dealers
These industries have an average net profit margin of 1.9% to 2.5%, as of 2016.
For anyone who is currently toying with the idea of opening a business in one of these industries, you may want to look elsewhere.
Here are the top 10 industries most profitable for small business.
The most profitable industry for small businesses is accounting and tax preparation services. This also includes bookkeeping and payroll services. With an average net profit margin of 18.4%, these services are among the most profitable business ventures.
The reason is simple. Regardless of the state of the economy, people still need bookkeepers and accountants. These are services that individuals and businesses cannot go without.
Next is the privately-owned holding companies. Keep in mind, this does not refer to the biggest players in the holding company industry. Berkshire Hathaway and Icahn Enterprises definitely do not fall into the small business category.
Holding companies are businesses that own investments, including stocks or mutual funds. Though, this can also include art, patents, and real estate. Almost anything of significant value can be purchased by these holding companies.
This unique industry has an average net profit margin of 15.5%, which places it firmly in the number 2 spot.
The real estate industry has recovered from the housing bubble that burst in 2006. Now, real estate agents and brokers are near the top of the list of profitable small businesses. The average net profit margin is 15.19%.
Real estate businesses tend to have low operating costs. You can get involved in this industry with just a brokerage license and a set of business cards. Though, it is still relatively dependent on the state of the economy.
The automobile dealership industry is among the least profitable industries. Yet, the automotive rentals and leasing industry as near the top – with an average net profit margin of 14.55%.
Car rental agencies require startup capital in order to purchase a fleet of vehicles, but operating costs are relatively low.
Most people know that hiring a lawyer is not an inexpensive process. The high legal fees are what helps this industry earn an average profit margin of 14.48%.
Attorneys also have low operating costs and repeat business. In addition to attorneys, this industry includes settlement officers and notaries.
Dental offices are a great place to earn a profitable income, with an average profit margin of 14.41%. These high profits mostly come from repeat business.
As with doctor offices, dental offices are regularly filled with returning patients. Though, startup costs are high. The purchase of dental equipment is a significant investment. But, the profit margins still make this a lucrative industry.
Small electric power companies operate with a net profit margin of 14.02%. This includes electric companies that use traditional fossil fuels, along with solar, wind, nuclear, and hydroelectric energy.
Surprisingly, landlords make this list, with an average profit margin of 14.01%. Industrial, commercial, and residential real estate rental can be a profitable business. But, landlords must first recoup their startup costs.
General physicians have their own category of health practitioners. Everyone else belongs in this category, such as optometrists, chiropractors, and podiatrists – to name a few.
These types of physicians operate with an average profit margin of 13.30%. Depending on the type of offices, the startup costs can be substantial or minimal. This depends on the type of equipment that is needed. For example, a chiropractor will not require the same equipment as an optometrist.
The last of the top 10 profitable industries belongs to general physicians – with a profit margin of 13.01%.
As with the other health practitioners, attorneys, and dental services, physicians rely on repeat business. Compared to some of these other industries, they also have lower overhead costs.
These are just some of the most and least profitable industries. Obviously, these stats can change during any given quarter.
Potential profit margins cannot always be estimated based on the industry average. But, it is an important metric to consider. It shows the potential for profit and reflects consumer demand.
Along with the average net profit margins, you should look at volume, market base, and other stats. For those wanting to launch a new business, keep these facts in mind.
Do your homework and research the industry you want to work in.
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