The service sector includes a wide range of business types, ranging from payroll companies to retailers. This is the case because entrepreneurs don’t need a lot of land and resources to access its market. Even the most profitable service business types require a relatively minimal amount of funding. The other two industries are the primary sector (fishing, mining, etc.) and the secondary one (manufacturing, building cars, etc.).
Having said all that, the services market’s many business types can be confusing. That is to say, they demand different amounts of funds and qualifications. Additionally, these companies have their own set of customers, and they engage with them in a specific way.
Because of this, we put together a list of the top 10 most successful businesses to start in the service sector. Their performance is measured based on each business type’s net profit margin (NPM). The NPM gives us a firm’s revenues after expenses, interest, and taxes.
The Top 10 Most Successful Businesses to Start: The Service Sector
The Santa Barbara Small Business Association compiled each business type’s NPM. The data pertains to nationwide figures that the Bureau of Labor Statistics published.
- Accounting and payroll companies (With an NPM of 18.4%)
- Real estate agencies and brokerage firms (15.2%)
- Vehicle and auto equipment lenders (14.6%)
- Law firms (14.5%)
- Dental clinics and offices (14.4%)
- Health practitioners and doctor offices (13% to 13.3%)
- Companies that lend out machines and equipment (12.6%)
- Scientific or technical consulting businesses (12%)
- Design companies (11.4%)
- Administrative services providers (11.3%)
But what does all of this mean to entrepreneurs that want to open a business?
Money, Money, Money
The top 10 most successful businesses to start in the service sector all require little to no funding. This includes all of the company types that are on the list, apart from machinery and auto lenders.
To clarify, these entities’ founders may have to buy vehicles and expensive equipment (such as trucks) in order to get started.
The minimal capital and entry barriers shouldn’t be a surprise, nonetheless. Firstly, this is aligned with small business trends across all sectors. Almost 60% of startups had $25,000 or less when they began operations.
Another third only had $5,000, at most. Moreover, about 70% of small business owners initially worked from home.
While a dental office or a law firm do require a physical office location, they consume much less money than restaurants and retail stores.
In fact, unlike the most profitable service business entities, the ones that had the lowest NPM rates required significant amounts of startup funds. For instance, newly founded wholesalers (that sell home or office supplies) only have a 1.9% NPM.
Similarly, grocery stores’ NPM is 2.5%, while furniture stores and alcohol sellers are at 3.3% and 3.4%, respectively.
All of these business types demand that entrepreneurs buy retail products and inventory in large amounts, even more so than medical offices. You also can’t get started without a gigantic retail location, alongside a sizable parking lot.
Equally as important, law firms and payroll companies may need to hire a handful of staff members, if not less. Grocery outlets and household sellers, on the other hand, must train dozens of employees.
Payroll Companies, Lawyers, and Medical Providers: Leading the Way
The list of the top 10 most successful businesses to start in the service sector is dominated by advanced-degree professions. That is to say, you can’t become an accountant, lawyer, or medical practitioner unless you complete years’ worth of academic courses.
Yet you don’t need an academic degree to establish a successful company. In short, entrepreneurs may start one of the most profitable service business types when they obtain a professional license.
Some prominent examples include real estate agencies and auto or machinery lending firms. Moreover, to open a design or administrative firm, you don’t even need a license.
However, keep in mind that the common theme tends to revolve around education, whether its through an academic program or licensing.
Another important pattern to note is that the most profitable service business entities offer intangible goods. In other words, they don’t sell physical products, like groceries, furniture, or household items.
Don’t degrees cost a lot of money?
They certainly do, but there are key differences between educational and commercial expenses. Firstly, millions of students across the country either have or are eligible for tuition loans.
Commercial lenders, meanwhile, are rejecting almost half (40%) of entrepreneurs that apply for funds. Because of how difficult it is to get approved for one, people are resorting to providers that offer small business funding online in large numbers.
A degree is also less risky than a startup. After all, if you have a CPA or a PhD, payroll companies or hospitals will easily hire you. These are incredibly strong fallback options in case your business fails.
Clearly, we can’t say the same about a large retail or grocery store that didn’t workout for its founder.
The Most Profitable Service Business Types: What This Means to You
The list of the top 10 most successful businesses to start in the service sector is full of entities that don’t demand a large amount of capital or resources. As a matter of fact, the least profitable firms are usually the ones that require more land, employees, and resources.
Yet there is always a catch. Only licensed providers and professional degree-holders can start the most profitable service businesses. However, this investment comes alongside a solid fall back plan and potential career opportunities should the business fail.
Entrepreneurs should identify their main strengths, such as a passion for real estate, strong math skills, or demonstrated salesmanship qualities. After that, leverage your knowledge, create an exit-strategy, and implement your plan.
At the end of the day, these are the main aspects that determine whether a company will be successful or not, regardless of which sector or industry it operates in.