In this article, we take a look at the 10 most profitable small businesses in 2023. For more such businesses, go to the 5 Most Profitable Businesses in 2023.
A small business is a privately-owned enterprise that typically has fewer employees and generates lower revenue than larger companies. While there is no universal definition of a small business, various countries, and organizations have established criteria based on factors such as the number of employees, annual turnover, and assets.
In the United States, for example, the Small Business Administration (SBA) defines a small business as an entity with fewer than 500 employees, while the European Union (EU) classifies a small business as one with fewer than 50 employees and an annual turnover or balance sheet total of less than $10.8 million.
Small businesses operate in a wide range of industries, including retail, hospitality, manufacturing, and professional services. They may be owned and operated by a single individual, a family, or a group of partners. Small businesses are typically more flexible and agile than larger corporations, allowing them to respond quickly to changing market conditions and customer needs.
Small businesses are often considered the backbone of economies around the globe. They play a critical role in driving economic growth, creating employment opportunities, and contributing to the social fabric of communities.
Market Outlook
Around 400 million small businesses are in operation around the globe. Despite their significance and number, small businesses face a range of challenges that can impact their survival and growth. According to the USBLS, more than half of these enterprises fail within 5 years of their inception, and only one-third reach the 10-year milestone.
These challenges include limited access to finance, difficulty in navigating complex regulatory environments, and fierce competition from larger firms. The COVID-19 pandemic had further exacerbated these challenges, with many small businesses struggling to stay afloat due to lockdowns, reduced demand, and disrupted supply chains.
According to estimates, 36% of businesses have reduced the employee-headcount relative to the pre-pandemic era, and roughly 60% of them experienced difficulties paying business-related expenses, due to increased costs.
However, many small businesses have been able to thrive by leveraging technology, cultivating strong customer relationships, and adapting to changing market conditions. Digital tools, such as e-commerce platforms, social media marketing, and cloud-based software, have enabled small businesses to reach new customers and expand their reach beyond local markets.
By focusing on customer experience and building trust, small businesses have been able to differentiate themselves from larger competitors and develop loyal customer bases.
Take the US for example. As noted by Small Business Administration, two out of every three new jobs in the past 25 years in the US have been created by small businesses. The owners of these businesses are also highly optimistic when it comes to outlook, owing to stronger fundamentals. According to one survey, 76% of small business owners believe their businesses will survive the current market downturn in the wake of rising inflation and rate hikes.
All over the globe, these enterprises are running the show, accounting for around 45% of the global GDP and that’s not all; they also employ up to 60% of the global workforce. Further, small-business market-share is expected to grow at a CAGR of 9.5% by 2030.
In different regions and industries, these businesses face unique opportunities and challenges. For example, in emerging economies, SMEs are seen as a vehicle for economic development, and governments have implemented policies to support their growth.
In developed economies, small businesses are often seen as a source of innovation and disruption, challenging established industries and driving new trends. In industries such as food and hospitality, small businesses are valued for their local expertise, personalized service, and unique offerings.
In recent years, these enterprises have become increasingly popular among aspiring entrepreneurs. Starting a small business can be a great way to take control of your financial future, pursue your passions, and create a meaningful impact in your community.
Different businesses in different industries have different profit margins.
Methodology
We’ve defined ‘most profitable small businesses’ as ones which operate in industries with the highest mean net margins. In this respect, we’ve ranked them in ascending order of high profitability. We’ve obtained the data for net margins and other indicators from CSI Market and NYU Stern School of Business, among others.
Without further ado, let’s look at the top 10 most profitable small businesses.
10. Building-Supply Retail
Average Net Margin: 8.67%
Building-supply retail is one of the most profitable small businesses in 2023, with a net margin of 8.67%, according to the NYU Stern School of Business. Building-supply retailers may serve a variety of customers, including professional contractors, builders, and do-it-yourself homeowners. They may also offer services such as delivery, installation, and custom cutting of materials to fit specific project needs.
The demand for building materials is strong, and in 2023, sustainable designs is one of the potential trends to drive the industry. However, the industry is projected to contract by 7% in 2023 due to rising inflation, supply-chain shocks and interest rate hikes, with prices expected to remain high. The ongoing infrastructure overhauling in the US, as well as government investment in housing, on the other hand, is expected to counter some of the pressures in the sector.
9. Dining
Average Net Margin: 9.28%
The restaurant industry allows for some of the most profitable small businesses in the world. The industry was one of the hardest hit during the pandemic, as lockdowns forced people to stay indoors. However, it is on the path to recovery, with revenue expected to reach nearly a trillion dollars in 2023.
Operating a small restaurant is incredibly easy, and there are several key advantages offered by small restaurants over large chains. These include more space for menu personalization, competitive pricing and flexibility.
While small business owners in the restaurant industry cannot go toe to toe with large chains in terms of advertising, they tackle the problem by building local connections and customer-base. The average net margin in dining businesses is 9.28%, per the NYU Stern School of Business.
8. Home Improvement
Average Net Margin: 9.65%
Small businesses in the home improvement industry, such as home-decor businesses, can have an average net margin of 9.65%, based on the industry’s performance in the trailing twelve months of 2022, as per CSI Market. The global home improvement industry is valued at $1.4 trillion as of 2021 and is projected to grow with a CAGR of 5.23% during the forecast period of 2022-2026, according to a report by Research and Markets.
The sector offers significant opportunities in the small-business space, due to increasing urbanization and a rising demand in home decor. Small businesses in the industry often have a competitive advantage when it comes to accommodating the unique needs of clients.
7. E-commerce
Average Net Margin: 10%
E-commerce continues to be one of the most profitable small businesses, with a net profit margin of up to 20%, averaging 10%. The global revenue of the E-commerce industry was around $5.7 trillion in 2022. The pandemic has accelerated the shift to online shopping, and this trend is expected to continue in 2023, with the market projected to grow 10.4% in 2023, which would result in $6.3 trillion in global E-commerce revenue.
E-commerce businesses can be started with relatively low capital investment and have the potential to reach a global audience. With the right marketing strategy and a user-friendly website, e-commerce businesses can generate significant revenue and profits.
Small businesses in the e-commerce industry can be run on several platforms like Amazon.com, Inc. (NASDAQ:AMZN), Shopify Inc. (NYSE:SHOP) and Walmart Inc. (NYSE:WMT), among others. Amazon.com, Inc. (NASDAQ:AMZN) and Walmart Inc. (NYSE:WMT) provide online retailers with the marketplace to sell their products. On the other hand, Shopify Inc. (NYSE:SHOP) provides the technology to build your own independent online store and also helps you connect with wholesale suppliers.
When it comes to market control in the US, however, Amazon.com, Inc. (NASDAQ:AMZN) dominates Walmart Inc. (NYSE:WMT) by a huge margin, with the former having a total market share of 39.5%, with the latter taking only 7%, as of mid-2022, per eMarketer. When it comes to independent online stores in the US, 29% of them are powered by Shopify Inc. (NYSE:SHOP).
6. Real Estate
Average Net Margin: 12.67%
Real estate services such as property management and real estate brokerage are profitable small businesses. The real estate industry has a mean net margin of 12.67%, per the NYU Stern School of Business. The global real estate market is one of the biggest markets in the world. According to Grand View Research, it is valued at $3.69 trillion, and is expected to grow with a CAGR of 5.2% during the forecast period of 2022-2030.
One of the advantages of operating a small business in real estate is the ability to provide personalized service and local expertise to clients. Small businesses often have a deeper understanding of the local market, including knowledge of neighborhoods, schools, and local regulations, which can be a valuable asset to clients looking to buy or sell property.
Click to continue reading and see the 5 Most Profitable Small Businesses in the World.
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Disclosure: none. 10 Most Profitable Small Businessess in 2023 is originally published on Insider Monkey.
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