Most profitable industries for opening a business | finder.com (2024)

To come up with our most profitable industries rankings, we relied on four sets of data from CSIMarket. We gave each data category a different weight and used the results to come up with our final rankings. The profit ratios that we used were from the first quarter of 2021.

These are the four data sets we collected and the weight assigned to each:

• Gross margin (40%)
• Net margin (20%)
• Cashflow margin (20%)
• Return on equity (20%)

We also relied on data from the US Bureau of Labor Statistics to determine the net growth in different industries. This did not factor into our profitability calculations, as the US Bureau of Labor Statistics uses different industry classification than CSIMarket.

Sources:

• Profitability by Sector within Total Market, by CSIMarket, accessed on May 13, 2021
• Establishment Age and Survival Data, last modified January 2020 by the US Bureau of Labor Statistics, accessed on May 13, 2021
• Employment Projections, last modified April 2021 by the US Bureau of Labor Statistics, accessed on May 13, 2021

Investing in a new business as an entrepreneur is a risky move — just over 50% of businesses that opened in 2015 were closed by 2019, according to the US Bureau of Labor Statistics.Starting a businessin a profitable industry can offset the risk you’ll have to shut your doors.

The data available today doesn’t reflect changes to the economy after COVID-19 — we’ll likely see lower profits across the board.

But it’s possible industries that were the most profitable in 2019 and early 2020 were more prepared to survive the economic impact of the coronavirus outbreak. And they could be a safer choice if you’re thinking ofstarting something new.

Which industries were the most profitable?

We found that consumer financial services, laboratory analytical instruments and software and programming were the most profitable industries based on our metrics. The least profitable? Agricultural production, metal mining and tires.

What exactly do we mean when we say profitable? Our team took a look at a range of numbers, including gross margin, net profit margin, cash flow margin and return on equity (ROE) during the first quarter of 2020.

We also looked at metrics to measure the turnover of businesses as well as the projected growth by sector. You can find a more detailed explanation of our analysis in our methodology.

Where’s the money?

If you’re concerned about pure profit, you’ll want to look at thenet profit margin— the percentage of revenue left over afteroperating expenses, taxes and other costs associated with running the business.

Laboratory analytical instruments businesses had the highest net profit margin of 27.98%, according to CSIMarket numbers from 2019. This was followed by consumer financial services at 23.97%, andlife insuranceat 22.81%.

Agricultural production businesses had the lowest profit margin at 0.3%, followed by wholesale retail at 0.87%, and transport and logistics at 1.13%.

It’s unlikely we’ll see profit margins this high in 2020, due to government shutdowns of nonessential businesses.

But it’s possible that these rankings might not see much change — those that had a higher net profit margin likely have more means to cover overhead costs whenrevenue goes on hold.

Were businesses closing or opening in 2019?

Some 130,014 more businesses opened than closed in 2019, according to the US Bureau of Labor Statistics.

The healthcare and social assistance industry grew the most, with 45,376 in net growth. This was almost double professional, scientific and technical services, which came in second place at 15,147 in net growth.

The wholesale industry was on a downswing, with 5,665 more businesses closing than opening. The finance and insurance industry also saw a high level of closures, with 2,478 more shuttered businesses than new companies — despite having the second-highest net profit margin. And manufacturing saw 1,176 more closures than openings.

It’s unclear which industries will come out on top after the coronavirus outbreak in 2020. But it’s likely thatindustries that were hit the hardest by COVID-19will see the highest amount of negative net change — like entertainment, hospitality and tourism.

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