What are the most profitable small businesses? We have 5 potentially lucrative ideas for you to consider.
Indeed, “profitable small business” isn’t an oxymoron. Entrepreneurs have the chance to start one of the most profitable businesses in their field thanks in part to digital technologies and sound strategic planning.
Choosing an Industry
The most successful small business ideas originate when entrepreneurs hone in on a highly profitable niche.
It should come as no surprise that most profitable small businesses are in the skilled service sector. Service providers, especially those without a storefront, don’t need to make significant investments in raw materials and tangible assets.
The average entrepreneur can’t afford to put up hundreds of thousands of dollars in startup capital. That’s why choosing a profitable industry with low barriers to entry is so important for the fiscal health of your company.
The 5 Most (and Least) Profitable Industries
According to a recent report on the most profitable industries for entrepreneurs, skilled business owners are poised to strike it big. To help you find the best opportunities, we put together a list of the most profitable small businesses:
- Accounting, tax prep, bookkeeping services
- Legal services
- Real-estate leasing
- Outpatient care
- Offices of real estate agents and brokers
- Oil and gas extraction
- Mining support
- Beverage manufacturing
- Grocery wholesale
- Garden and lawn supplies
Naturally, capital-intensive industries that are costly to operate (such as natural resource extraction) don’t generate high returns for small businesses. Instead, we recommend finding a service niche like outpatient care, leasing or online professional services.
Net Profit Margins
Analyzing which industries generate the highest net profit margins is a great way of identifying the most profitable businesses. Net profit margins are an indicator of profit on sales. This simple metric is generated by dividing net income by total revenue, showing you how much of every dollar earned is converted into profit.
Some businesses, such as restaurants, will have a net profit margin of 6% to 9%; however, most profitable businesses, such as accounting, financial services and legal services generate net profits between 17.4% and 18.3%.
Generally, businesses with low net profit margins rely on high-volume sales to generate sustainable income and remain solvent. This is why beer and wine sales typically net between 3% and 4% margins but are sold in high enough quantities to justify the low markup.
5 Lucrative Business Ideas to Consider
The most profitable small businesses to start can be founded with minimal investment.
Rent, payrolls, consulting fees and other costs used to keep many would-be-owners from trying. Today, the ubiquity of smart devices and online connectivity have lessened overhead costs for many businesses.
Let’s explore 5 business ideas that have low start-up costs and the potential to yield high profit margins.
This industry encompasses a category of businesses that are physically mobile, meaning they’ll travel to their clients’ locations to render services rather than having customers come to them.
Some of the most profitable small business ideas within the mobile business sector can be started on a shoestring budget. A list of the most profitable small businesses includes:
- Pet grooming
- Food trucks
- Junk removal
- Personal training
- Cleaning services
These businesses offer a common value proposition to customers: convenience. Today, the average consumer seeks convenience and speed when hiring professional services. If you own a vehicle, you can transport yourself to the customer’s home and render the services there. In doing so, you take a major headache out of the experience for the customer.
Aspiring entrepreneurs should note that some states require mobile vendors to apply for licenses and permits. Even then, these mobile enterprises can become one of the most profitable self-employed businesses you can get involved in.
Business-to-business (B2B) freelancers offer unique value to small and mid-sized businesses that could use workers with specialized skills but might not have the need or the budget to keep someone on the payroll full-time. As a freelancer, you can take on as many or as few clients as you can reasonably handle. Much of this work can be conducted virtually, which means you can find business well beyond your current geography.
A few of the most sought-after freelancers in today’s market are:
- Graphic designers
- Social media managers
- Blockchain technology experts
- Data scientists
In the knowledge economy, an increasing number of aspiring experts are eager to advance their skills by learning from those at the top. For established experts, virtual instruction is one of the most profitable online business ideas you’ll stumble upon. Many of the most successful small businesses, such as Udemy, are online education companies. They help you develop and manage online courses and it can be a highly profitable small business option.
Childcare opens the door to plenty of profitable small business ideas. With so many families needing both parents to work full-time, there’s both a need and an opportunity for small business owners to cater to and accommodate busy caregivers.
Daycare and similarly focused childcare companies allow adults to provide for their families while knowing that their children are being cared for in a safe environment.
As we learned earlier, professional services like attorneys, real estate agents and bookkeepers are some of the most profitable businesses you could start in 2021. One of the reasons for this is because these entrepreneurs have often honed their skills in other businesses, affording them plenty of time to sharpen their skills before venturing out on their own.
While there can be significant costs associated with getting a professional services business up and running (especially outpatient care), these businesses offer things people need. The expertise to do them right the first time commands a premium, leaving you, as the business owner, to profit.
Free or Inexpensive Business Ideas
These days, the rise of affiliate marketing and drop-shipping have made zero-cost (or low-cost) ecommerce a viable option for many capital-strapped entrepreneurs. The most profitable small businesses to start are those that require minimal startup capital—usually, these are online businesses that offer a service or a drop-shipped product.
There is a good deal of debate over whether ecommerce is a better choice for new entrepreneurs than affiliate marketing. The truth, however, is that both avenues offer dedicated entrepreneurs the ability to create highly profitable small businesses out of thin air.
Small Business Success: Margins Over Scale
Remember, the most profitable small businesses to start are those that can capture high margins. Unlike industries that thrive at scale, the most profitable businesses are those that focus on keeping the share of profits on every sale high (i.e., above 15%). This way, you can support yourself and the business even with modest sales.
Starting a new venture doesn’t have to be an all-or-nothing endeavor from the start. If, for financial or personal reasons, your new business can’t be your full-time job in its early days, start small and tip-toe into the project on weekends and evenings. Profitable small businesses are those that often capitalize on a niche in the market, or an underserved market, and strategically jump into the action.
Digitization and changing demographics offer new avenues to success for tomorrow’s entrepreneurs.