The 5 private industries with the highest profit margins
You’ve signed the lease for your new office, furnished the space, bought equipment and hired staff. Your budget looks solid, but did you take into account the net profit margins that you can expect in your new industry?
Those earnings -- defined as how much money is left over after all operating costs, including expenses like taxes and interest, are paid -- can make or break even the best thought-out business plan.
Financial information firm Sageworks recently released their latest ranking of most profitable private industries:
1. Accounting, tax preparation, bookkeeping, and payroll services
Net profit margin: 18.3 percent
2. Legal services
Net profit margin: 17.4 percent
3. Lessors of real estate
Net profit margin: 17.4 percent
4. Outpatient care centers
Net profit margin: 15.9 percent
5. Offices of real estate agents and brokers
Net profit margin: 14.8 percent
By comparison, Sagework says the average net profit margin for private industry was 7.7 percent. So why are the above-listed industries different?
“The most profitable industries are those in which the business model relies heavily on human capital among the business owners and professionals,” Sageworks analyst Libby Bierman noted in an analysis. “Their experience justifies larger margins than, for example, a retail store, so it’s no surprise that accounting and legal services, as well as several medical industries, are near the top of the list.”
“The presence of several real estate-related industries on the list is evidence that the buying and selling of properties continue at a high volume, though it may not be true in all geographies,” she added.
“For accounting, legal services and real estate, firms in those industries often have low overhead costs (little to no equipment or inventory) too, which helps boost the bottom line,” Bierman said.
Below is Sagework’s list of 15 most profitable industries: