The Most Profitable Small Businesses
10 Small Businesses with the Highest Profit Margins
While it is common knowledge that most successful businesses start with a great business idea backed by a solid business plan, some businesses/industries have higher profit potential than others. If you are an entrepreneur or investor looking for a new small business opportunity, limiting your choices to the most profitable small businesses listed in this article is one of the best ways to ensure success.
Despite the seeming dominance of large corporations, small businesses continue to be the engine of the North American economy. According to the U.S. Small Business Administration (SBA), approximately 550,000 new small businesses are established every month in the U.S., creating two out of every three new jobs. Over half of Americans own or are employed by a small business.
In addition to profitability potential, many of the businesses listed below are are experiencing strong demand due to the continuing trend by corporations to outsource business functions such as accounting, payroll, information technology, social media, legal services, and even marketing. Many former full-time employees of larger businesses have become self-employed due to outsourcing, and the trend shows no signs of slowing down.
Profit Margin by Sector
As the following table demonstrates, profit margins vary substantially by sector, with professional services scoring the highest:
|Sector||Avg. Profit Margin (2017)|
|Professional, Scientific, IT services||11.9 percent|
|Accommodation and Food Service||4.4 percent|
Here are 10 of the most profitable small businesses as ranked by Sageworks in order of average profit margin and listed with the corresponding North American Industry Classification (NAICS) Code. For comparison, the average profit margin of companies on the Standard and Poor's (S&P) 500 was 11 percent in 2017.
Accounting, Tax Preparation, Bookkeeping, and Financial Planning
Accounting/bookkeeping, tax preparation, and financial planning are required activities for almost all businesses and individuals, guaranteeing a strong demand now and in future for qualified service providers.
Capital Investment/Overhead: With nominal overhead other than office space and computing equipment, startup costs are minimal. Many in the industry operate as home-based businesses.
Education/Training and Barriers to Entry: Bookkeeping and tax preparation training is relatively easy to obtain, however, accounting certifications (such as CPA, CA, etc.) require a bachelor's degree, subsequent training, and related work experience.
Average Profit Margin: 18.4 percent
NAICS Codes: 541212, 541213, 541215, 523990
Real Estate Leasing
According to a report by the Pew Research Center, more American household heads (36.6 percent) rented their home in 2016 than at any time in the last 50 years.
Capital Investment/Overhead: Leasing agents can work from virtually anywhere, so overhead is mostly limited to ongoing expenses for advertising, vehicle maintenance, phone, etc.
Education/Training and Barriers to Entry: Requirements depend on jurisdiction - some states require a leasing agent license, others require a real estate agents license. Both require a training course and completion of the licensing exam(s).
Average Profit Margin (Leasing): 17.9 percent
NAICS Codes: 531190, 531120
As with accounting and tax preparation, almost every business and individual will eventually require the services of a lawyer. Examples of legal services for business include:
- Corporate/Commercial Law
- Employment Law
- Technology and Intellectual Property Law
- Bankruptcy Law
Legal services for individuals include areas such as:
- Family Law
- Criminal Law
- Personal Injury Litigation
- Wills and Trusts
Capital Investment/Overhead: Whether operating from home (as many solo lawyers do) or on commercial premises, quality office space for consulting with clients is a must. Other costs include basic computing equipment, software, and malpractice insurance.
Education/Training and Barriers to Entry: Becoming a lawyer generally requires a four year bachelors degree plus three to four years of law school followed by passing the bar exam to become licensed to practice.
Average Profit Margin: 17.4 percent
NAICS Code: 541110
Outpatient clinics provide non-overnight medical services including diagnostic testing, treatments, surgical procedures, counselling, etc.
Capital Investment/Overhead: The costs to establish a basic private medical practice typically exceed $100,000. Adding diagnostic equipment and/or surgical facilities requires a much larger investment.
Education/Training and Barriers to Entry: Becoming a doctor typically requires at least 10 years of post-secondary education, including an undergraduate degree, medical school, and a residency program. Specialization requires additional schooling and training.
Average Profit Margin: 15.9 percent
NAICS Code: 621400
Property Managers and Appraisers
For the same reasons that real estate leasing is booming, associated services such as property management and appraisals are high on the list of profitable small businesses.
Education/Training and Barriers to Entry: In some jurisdictions, a property manager must also hold a real estate license. Appraisers must begin by completing 100 -150 hours of coursework followed by 1000+ hours of work experience under a licensed appraiser before completing the licensing exam.
Average Profit Margin: 14.9 percent
NAICS Code: 531310, 531320
According to the U.S. Bureau of Labor Statistics, the demand for dentists is expected to grow by 19 percent through 2026, much faster than most other occupations.
Capital Investment/Overhead: Opening a dental practice typically requires a minimum of $400,000 for a properly constructed facility and basic equipment. Advanced diagnostic and other equipment can easily double the cost. Additional overhead includes staff wages for dental assistants/hygienists, receptionists etc.
Education/Training and Barriers to Entry: Becoming a dentist requires a bachelor's degree plus four years of dental school. Additional training/education is required for specialization.
Average Profit Margin: 14.8 percent
NAICS Code: 621210
Offices of Real Estate Agents and Brokers
Along with leasing and property management, real estate sales have steadily risen since the 2008 recession, with over 5.5 million homes sold in the U.S. in 2017 (Statista.com). The demand for real estate agents and brokers is expected to grow by 6 percent through 2026, according to the U.S. Bureau of Labor Statistics.
Capital Investment/Overhead: Office, vehicle, phone, internet, licensing fees as well as suitable professional attire.
Education/Training and Barriers to Entry: Realtors must take a real estate course, pass the licensing exam and become a member of the local real estate association. To become a broker you must have at least a year's experience as a sales agent before taking the broker's training course, passing the examination, and obtaining a broker's license.
Average Profit Margin: 14.3 percent
NAICS Code: 621210
Other Health Care Practioners
The "Other Health Care Practitioners" category includes service providers such as:
- Physical, Occupational, Speech Therapists
- Mental Health Practitioners (except Physicians)
Capital Investment/Overhead: Capital investment ranges widely depending on the specialization. The startup costs for an Optometry practice can be in excess of $300,000 for office space, equipment, and inventory, whereas a Mental Health Practitioner can work from home or from a small office.
Education/Training and Barriers to Entry: All Health Care providers require a bachelor's degree followed by a degree program in the specialization in order to become a licensed practitioner.
Average Profit Margin: 13.3 percent
NAICS Code: 621300
Management, Scientific and Technical Consulting Services
Management, Scientific and Technical Consulting businesses provide specialized services in a variety of disciplines to businesses and governments, including:
- Management consulting
- Human Resources consulting
- Corporate Strategy
- Environmental compliance
- Workplace safety
- Information Technology
Firms range in size from one-person consulting businesses to large firms that offer services in a variety of areas.
Capital Investment/Overhead: Startup costs are minimal except for some of the scientific disciplines that may require specialized equipment. Most can be operated as home-based businesses.
Education/Training and Barriers to Entry: A bachelor's degree at minimum, typically followed by specialized training and/or related work experience.
Average Profit Margin: 12.1 percent
NAICS Codes: 541611, 541612, 541800, etc.
Warehousing and Storage
Warehousing and storage facilities are always in demand from both residential and commercial customers. Many businesses do not have on-site space for storing equipment or inventory, and home owners often have more possessions than space in the home.
Capital Investment/Overhead: Purchasing or constructing warehouse or storage space requires significant capital investment, particularly in urban areas or any locale where real estate is in high demand.
Education/Training and Barriers to Entry: Running a warehousing/storage facility does not require any education or training; however, prior experience in the industry is helpful. Many such facilities provide no services other than storage space, utilities, building maintenance, and security - customers can utilize the space however they wish.
Average Profit Margin: 11.6 percent
NAICS Code: 493100