Starting a business can be exciting, with many hoping it leads to more freedom and financial rewards. But making a company that earns real profits isn’t always easy. What makes a business truly profitable? And why do some do well while others struggle?
In simple terms, a profitable business brings in more money than it spends. It’s not just about selling a lot-it’s about keeping what’s left after covering all costs. Since 1 in 5 businesses stop operating in their first year, and about half don’t make it to five years, picking industries where businesses usually make bigger profits can make success more likely. This article explains what makes businesses profitable, different types of profitable businesses, and some of the top opportunities for 2024 and beyond.
What makes a business profitable?
Profitability comes down to how much money, or profit, a business keeps after covering all its costs. This shows how healthy the business’s finances are. Even if a company brings in a lot of money, if it spends just as much, it won’t actually be profitable. On the other hand, a business with lower sales can still be profitable if it keeps costs down.
Understanding profit means looking deeper than just how much money comes in. It’s about how a business runs, what it sells, and the choices it makes to stay ahead. It’s a balancing act between customer demand, running the business well, and being smart about money.
How do you measure profitability?
Business owners usually use different financial measures, especially profit margins, to see how well their business is doing:
- Gross Profit Margin: This shows what percent of sales is left after paying for what it costs to make the products (materials and labor). If this number is high, the business is good at managing production costs.
- Operating Profit Margin: This shows what percent of sales remains after paying for regular business expenses like wages, rent, and utilities but before paying interest and taxes. It gives a picture of how efficient the core operations are.
- Net Profit Margin: This is the final number-what’s left after all costs, including supplies, operating expenses, interest, and taxes. For small businesses, a net profit margin of 7% to 10% is usually healthy.
These measurements help both owners and investors know if a business can turn sales into real profit and spot ways to run the business better.
Main factors that affect profit margins
A few important things influence how much profit a business can make:
- Pricing: If prices are too low, you might sell more but make very little per sale. If prices are too high, some customers might go elsewhere. Finding the right price is key.
- Cost of Goods Sold (COGS): For companies that sell products, the cost to make or buy those products heavily affects profits. Getting cheap suppliers or making production more efficient helps. Service businesses look at the cost to deliver their service.
- Efficiency: Cutting waste and using resources well lowers costs. Good management of things like inventory, time, and staff helps boost profits.
- Demand: High demand makes it easier to raise prices and sell more. Low demand often means having to cut prices, which hurts profits.
- Competition: Lots of competition can lead to lower prices and lower profits. Businesses with unique products or services often do better.
- Ability to Scale: If you can earn more without spending much more, it’s easier to grow profits. Using technology or repeatable services helps.
- Keeping Customers: It’s usually cheaper to keep customers than to find new ones. Businesses with loyal customers spend less on marketing and keep steady income.
Managing these areas well helps businesses increase profits and achieve lasting success.
Why are some businesses more profitable than others?
Some businesses make more money because of the industries they’re in, how they operate, and how they set themselves apart. Some industries give businesses a better chance at high profits simply because there is steady demand, low costs, or opportunities to earn recurring income.
These edges can come from what they sell, how much it costs to run, or the ability to grow steadily. Recognizing these factors helps people choose and start businesses in growing markets.
Industry patterns and market demand
A key driver of profit is what’s popular in the market and where demand is strongest. Businesses in fast-growing areas with lots of customers usually make higher profits. When more people want a product than there are businesses offering it, companies can charge more and sell more units.
For example, technology services, healthcare, and digital marketing are growing fast. By the end of 2024, the software industry could reach $702 billion, and real estate could top $635 trillion. Global ecommerce could rise to $8.09 trillion by 2028. By contrast, shrinking industries with too much competition often see profits go down. Targeting growing industries or meeting basic, ongoing needs usually pays off.
Low startup and running costs
Businesses that cost less to start and operate often become profitable sooner. A company that doesn’t need a lot of money for equipment or rent can keep more of its income.
Many online businesses, consultants, or freelancers fit this model. You may only need a computer and internet connection to start, like with freelance marketing or virtual assistance. Online courses and dropshipping businesses don’t need big inventories or storefronts either. Since there’s less money tied up, these businesses keep more of what they earn.
Scalability and recurring income
Profitable businesses often can grow (or scale) easily and earn repeat income, like through subscriptions or regular contracts. When a company can make more money without raising costs by the same amount, its earnings go up faster.
Examples are software businesses or online education companies, where adding customers doesn’t cost much extra. Models like subscriptions, retainers, or ongoing contracts bring in steady and predictable money, helping the company plan ahead and stay profitable for longer.
Types of profitable businesses
Looking at profitable businesses by type makes it easier to choose what’s right for you. Each type has its own strengths but, done right, any can earn strong profits. Here’s a breakdown:
Service businesses
These businesses often earn more because they cost little to start and rely on the owner’s skills-like consulting, personal training, coaching, or cleaning. Many can be run from home. Since most costs are just your time, fees can be higher, and you don’t need to spend much on supplies or advertising. Good service leads to repeat business and referrals, adding to steady profits.
Product businesses
These require you to make or buy things to sell. They need more starting money-for stock, making goods, or renting space-but can become very profitable with smart branding and solid demand. Examples include making custom jewelry, restoring old furniture, or selling specialty foods. Success means managing stock well and spotting a market niche.
Online and digital businesses
The internet makes it possible to reach customers anywhere with low costs and the chance to grow quickly. These include e-commerce, digital marketing, web design, online courses, and virtual assistants. Automated systems or outsourcing can keep costs low and profits high. Popular platforms let anyone sell their expertise or products around the world.
Franchises
Buying into a franchise gives you a business plan, brand, and support from the start. There are upfront and ongoing costs, but the risk is lower due to the proven system. Franchises pop up in food, cleaning, fitness, and more. Many are affordable to start-some for under $10,000.
Most profitable businesses for 2024
The following are some of the best profit-making businesses in 2024, helped along by bigger demand, new technology, or changing customer habits. Here’s where the money is right now:
1. Technology services and software
Tech businesses lead the pack. Software, app development, cybersecurity, and IT support are all in huge demand and expected to keep growing, with the industry worth over $700 billion in 2024. Many tech services can be delivered online and have low running costs, which means higher profits-especially for specialties like AI or cloud computing.
2. Real estate and property management
Real estate remains a go-to for building wealth. By late 2024, the market could reach $635 trillion. From agents to property managers and vacation rentals, there is steady demand and chances to earn recurring money, particularly in places with lots of tourists or people moving in and out. Small rental properties can earn tens of thousands per year.
3. E-commerce and dropshipping
With online shopping booming, e-commerce is expected to top $8 trillion by 2028. Dropshipping lets you sell products that a supplier stores and ships for you, so you don’t need inventory. Startup costs can be under $100, with margins around 20%-30%. Choosing the right products and getting good at online ads is the key to success here.
4. Consulting
Companies pay a lot for advice that helps them work smarter and grow. Management, finance, HR, and general business consultants-many taking in over $200,000 a year-work mostly remotely and have few expenses. With experience, offering specialized guidance and helping clients cut costs or grow profits pays well. Financial planners are also in demand.
5. Digital marketing agencies
As more companies focus online, digital marketing services-SEO, content creation, social media, ads, and design-are seeing double-digit yearly growth. Starting costs are low, and choosing a specialty can win you ongoing contracts. Many agencies make six figures or more with a remote team.
6. Healthcare and private practices
The need for medical care keeps rising. Doctors, clinics, and even telehealth services can be very profitable, especially in in-demand areas like cosmetic treatments or physical therapy. These businesses take more training and cost to start, but profits are big and steady as people spend more on health and wellness.
7. Bookkeeping, accounting, and tax prep
Every business needs help with finances. Accountants and bookkeepers enjoy steady work, usually with low costs since they can work from home. Bookkeepers don’t need a degree, just knowledge in tracking daily money. During tax season, profits jump higher.
8. Cleaning and maintenance
Cleaning businesses-homes, offices, or special facilities-always have customers and low startup expenses. Regular service contracts bring steady income, and specialties, like hospital cleaning, let you charge more. Most cleaning businesses grow through referrals and have consistent demand.
9. Home improvement and remodeling
More people are spending to fix up or upgrade their homes. This sector has grown a lot in the last decade, with various services like kitchen upgrades, repairs, or eco-friendly remodels. High quality jobs lead to higher prices and ongoing work from happy clients.
10. Education, tutoring, and online courses
With online learning exploding, there’s strong demand for courses and tutors. The market for online education is expected to top $87 billion in 2024. Creating courses can earn passive income, while online tutoring pays $40-$65 an hour. People with expertise in tough subjects can make good money helping others learn.
11. Fitness coaching and personal training
Health and fitness are top priorities for many. Personal trainers-both in person and online-can start with little money and charge high prices. Many trainers build a following on social media, selling nutrition advice or branded fitness products on the side. The US personal training market reached $14 billion in 2023.
12. Event planning and catering
Organizing events, from weddings to corporate gatherings, is growing. Planners earn steady fees, with weddings alone averaging $2,100 per event. Catering for schools, offices, or parties offers regular income. The event industry is expected to grow by 7% yearly through 2030.
13. Pet care services
People are spending more than ever on pets. Pet sitting, walking, grooming, and training are always needed. The industry is growing at nearly 6.5% a year. Startup costs are low, and since pet owners return again and again, regular clients bring in steady money.
14. Food trucks and specialty food
Food trucks offer a way into the food business without huge rent bills. They can quickly move to busy spots, draw crowds, and serve unique food. Startup costs are around $50,000, but profits can be several times that each year. Niche food businesses, like bakeries or specialty catering, also do well in this area.
15. Landscaping and lawn care
Lawn care and landscaping stay busy year-round, with regular clients and bigger job opportunities. Basic gear is all you need to get going, and offering design or special outdoor projects leads to higher rates. Top earners in this field can make close to $80,000 yearly.
How to choose the most profitable business idea for you
Picking the right business is a personal choice, not just about the biggest possible profits. It should match your skills, interests, and resources so it’s something you can stick with and enjoy growing.
Check your skills and interests
Start by thinking honestly about what you do well, what you like, and where you have real experience. For example, someone with a finance background might do best in accounting or consulting. A good writer could start a content business. Experience in a field makes starting easier and gives you an edge. Existing licenses or certifications are helpful if you want to go into areas like real estate or coaching.
Know your market and area
Once you know your strengths, look at what people in your chosen market want and where you’ll operate. Look for open spots in the market and check if there are already lots of similar services around you. For example, a boat cleaning business is best near water, while a multilingual area can use more interpreters. Studying the local economy helps set your business up for steady profits.
Online or in-person business?
The internet lets many businesses go online, which cuts costs and opens doors worldwide. Online stores, agencies, and tutoring cost less to launch. Physical businesses, like a food truck or cleaning company, need a local presence, which means more setup costs, but can build loyal local customers.
Choose based on your goals, budget, and how you want to interact with clients.
Steps to start a profitable business
Starting a profitable business takes careful planning and smart choices. Here’s a simple outline many successful companies follow:
1. Research your market
Before you spend much money, study your target customers, their needs, and your competition. Good research helps you see what customers want and what other businesses offer. Use this knowledge to adjust your idea, so you offer something special and in demand.
2. Write a clear business plan
A business plan sets your goals and the steps to reach them. It covers who your customers are, what you offer, how you’ll earn money, and how you’ll get the word out. It should also include a budget and forecast for earnings and costs.
3. Pick the right legal setup
Your business type (for example, sole owner, LLC, or partnership) affects your taxes and personal risk. Register with the proper authorities and get any needed licenses. It’s wise to ask a lawyer or accountant for guidance, as this choice can affect your business for years to come.
4. Build your brand and marketing plan
Create a strong business look and feel-name, logo, colors, and how you talk about yourself-that appeals to your audience. Plan how you’ll reach customers, including a website, social media, and online marketing like SEO or ads.
5. Arrange your finances
Decide how to pay for startup costs-savings, loans, investors, or crowdfunding. Set up a business bank account to keep company money separate from personal funds. Watch your spending and keep records of all your earnings and costs for clearer business decisions.
6. Deliver great service and keep clients
The real secret to long-term profit is happy customers who come back and tell others about you. Be quick to reply, solve problems fast, and listen to what customers say. Good service leads to repeat business and a steady flow of new clients through recommendations.
How to keep your business profitable long-term
Earning profits early on is important, but lasting profitability comes from staying alert and willing to change with the times. Markets change, customer needs shift, and what worked before might not work forever.
Follow customer trends
As customer needs change, businesses must adjust. For example, more people now want eco-friendly products, and remote working has increased the need for virtual services. Keep asking customers for feedback and watching industry news so your business can keep up and stay relevant.
Use technology and automation
Modern businesses need to use technology. It saves time, cuts costs, and improves how customers experience your business. Use tools like point-of-sale systems, accounting programs, or online customer management. Automate repetitive tasks with software to save time for bigger decisions. Technology helps you grow without raising costs as quickly.
Monitor your financial health
Keep a close watch on income, expenses, and key numbers, such as profit margins. Review reports regularly to spot trends and see where you can improve. Understanding your numbers helps you make smarter decisions, adjust pricing, and keep your business on the right path.
Frequently asked questions about profitable businesses
Which businesses are most profitable with low startup costs?
Service and online businesses are often most profitable for newcomers with little money. Examples: freelance writing, virtual assisting, dropshipping, online tutoring, digital agencies. Pet sitting and house cleaning also fit, with few expenses.
What business has the best profit margin?
Financial services, law, real estate, healthcare, and tech guide the list for high margins. Within that, retirement services (70-85% margin), coaching (60-80%), and custom tech services stand out. Consulting, with low costs, is often near the top as well.
What business is low-risk but very profitable?
Businesses with low startup costs and steady demand are less risky and offer strong profits. Good examples are dropshipping, online courses, virtual assistants, cleaning, or pet care. Avoid businesses that need big investments in stock or property, since those tie up a lot of money.
Which jobs make the most money?
High-income jobs often need a lot of training or responsibility. Top examples include doctors, especially surgeons, senior financial professionals, lawyers, software experts, and consultants. These skills can also help start a profitable business in the same field.
Are profitable businesses easy to grow?
Not all profitable businesses can be scaled up quickly, but many can. If a business can automate services, use technology, or set up repeat systems (or even franchise itself), growth is easier. Online businesses like ecommerce or online courses are especially good for scaling, as adding customers doesn’t boost costs much.
