A snapshot of small business profit margins by industry. Benchmark your business against the standard.
Are you considering becoming a small business owner? Do you want to estimate the personal earning potential of your target business? Take a view of small business profit margins by industry.
Are you an existing small business owner who is considering upgrading your current earning potential?
The following is a shortlist of small business industries and their net profit margins as provided by SageWorks analysts in 2011 (remember that the figures below represent surplus monies after all expenses, overheads, deductions, interest and taxes, represented as a percentage of total revenue):
- IFA 16.94%
- Bookkeepers 16.92%
- Lawyers 15.05%
- Management, scientific, technical consulting service 13.50%
- Other brokerages i.e. insurance 11.93%
- Estate agents 10.19%
- Residential building construction 0.59%
- Commercial building construction 0.40%
No surprises that at number 1, you have financial advisors bringing in the highest margin of profit among their small business owner contemporaries.
The barrier to entry into such businesses are professional qualifications and registration with regulatory bodies, along with relationships (ties) with product providers.
Bookkeepers, lawyers and management consultants are all close 2nd, 3rd an 4th to IFA with only 3.44% difference.
Brokerages and estate agents who are effectively the country’s largest army of commercial middlemen supported by the property market, the UK’s largest private asset exchange.
Matchmaking vendors with buyers in deals worth millions of pounds per transaction, leaves much room for a bountiful margin in between.
Finally, construction firms specialising in both commercial and residential jobs, suffer heavy expenses with increasing materials and labour costs, especially with changing legislation surrounding the payroll responsibilities of contractors for sub-contractors.
Builders net profit margins are typically below 1% of total turnover.
So, along with all the other points of consideration which are weighed in the balance before making your decision to embark upon a particular type of self-employment – earning potential must be evaluated.
Calculating an absolute value rather than just margins will give you the bottom line. Then extrapolate across the duration of your small business journey, you can see the feasibility of your desired exit value too.
Choose wisely whilst you are still undecided, counting the cost of your options before finally committing.