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Investing in a new business as an entrepreneur is a risky move — 50% of businesses that opened in 2016 were closed by 2020, according to the US Bureau of Labor Statistics. Starting a business in 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 2020 and early 2021 were more prepared to survive the economic impact of the coronavirus outbreak. And they could be a safer choice if you’re thinking of starting something new.
Which industries were the most profitable?
We found that consumer financial services was the most profitable industry based on our metrics, followed by investment services, and miscellaneous financial services. The least profitable? Cruise and vacation, employment agencies and agricultural production.
Top 10 most profitable industries
1
Consumer financial services
2
Investment services
3
Miscellaneous financial services
4
Laboratory analytical instruments
5
Money center banks
6
Regional banks
7
Internet services & social media
8
Software & programming
9
Computer hardware
10
Chemicals – plastics & rubber
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 2021.
We also looked at metrics to measure the turnover of businesses as well as the projected growth by sector. 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 the net profit margin — the percentage of revenue left over after operating expenses, taxes and other costs associated with running the business.
Laboratory analytical instruments businesses had the highest net profit margin of 42.11%, according to CSIMarket numbers from the first quarter of 2021. This was followed by plastics & rubber chemicals at 39.95% and consumer financial services at 37.58%.
Agricultural production businesses had the lowest profit margin at 0.20%, followed by advertising at 0.25%, and tires at 0.96%.
While 2021 saw slightly higher profit margins than 2020, industries like railroads, computer networks and nonalcoholic beverages were overtaken mainly by companies that work in finance.
It’s possible that we’ll continue to see low profit margins for nonfinancial businesses through 2021, due to government shutdowns of nonessential businesses, labor and supply chain shortages.
But it’s also possible that banking and finance won’t stay on top. An increase in savings and investments sent these industries to the top. And savings and investments could take a backseat as the country shifts financial habits again.
Some 90% of Americans plan to travel in the next six months, according to a May 2021 report by the US Travel Association. And saving might not be as much of an option for some when unemployment benefits expire.
Were businesses closing or opening in 2020?
Some 42,650 more businesses opened than closed in 2020, according to the US Bureau of Labor Statistics.
The healthcare and social assistance industry grew the most, with 26,228 in net growth. This was more than triple professional, scientific and technical services, which came in second place at 8,639 in net growth.
The retail industry was on a downswing, with 20,142 more businesses closing than opening. The wholesale trade industry also saw a high level of closures, with 11,292 more shuttered businesses than new companies. And accommodation and food services saw 8,656 more closures than openings.
As states slowly reopen, it’s still unclear which industries will come out on top after the coronavirus outbreak. But it’s likely that industries hardest hit by COVID-19 will continue to see the greatest amount of negative net change — like accommodation and food services.
Supply chain disruptions during the pandemic have also negatively impacted manufacturing, wholesale and retail trade. And it’s not certain when these industries will be able to bounce back.
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.
Employment Projections, last modified April 2021 by the US Bureau of Labor Statistics, accessed on May 13, 2021
Past Profitable Industries studies
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 business in 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 of starting 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 the net profit margin — the percentage of revenue left over after operating 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%, and life insurance at 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 when revenue 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 that industries that were hit the hardest by COVID-19 will see the highest amount of negative net change — like entertainment, hospitality and tourism.
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 2020.
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.
Anna Serio is a lead editor at Finder, specializing in consumer and business financing. A trusted lending expert and former certified commercial loan officer, Anna's written and edited more than 1,000 articles on Finder to help Americans strengthen their financial literacy. Her expertise and analysis on personal, student, business and car loans has been featured in publications like Business Insider, CNBC and Nasdaq, and has appeared on NBC and KADN. Anna holds an MA in Middle Eastern studies from the American University of Beirut and a BA in Creative Writing from Macaulay Honors College at Hunter College, CUNY.
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