Are you curious about what business owners earn? Or the common challenges experienced by small businesses? Then look no further. I’ve collected, curated and vetted a list of up-to-date statistics for small business owners.
Whether you are just starting or already own a small business, understanding key statistics on small businesses can help you set expectations and make better decisions. From bricks-and-mortar businesses to local service businesses, these statistics will help you make sense of how you are performing and what you should expect. Keep reading for the top 10 statistics business owners need to know.
1. How much does it cost to start a small business?
The average small business owner uses $10,000 in startup capital.
But here’s an important statistic from the retail industry. The average cost of starting a retail business is $32,000, however some store owners have reported starting with only $5,000. That means that by making wise startup decisions and negotiating with vendors, small business owners can dramatically reduce the amount of startup capital required.
I think it’s also important to note that most small business owners work between 40 and 49 hours per week, and 81% of business owners work nights and 89% work on weekends. So this isn’t a holiday, being a small business owner puts your capital at risk and is hard work.
2. How much revenue does the average small business make per year?
The average small business generates $900,000 in revenue per year.
This number is wildly misleading. Remember, the Small Business Administration defines a small business as an independent business with fewer than 500 employees. Five-hundred! Your revenue will depend on a wide range of factors from the size of your market, to the number of employees and the amount of capital invested.
What’s actually more helpful is the average revenue generated per employee. You can take your planned number of employees and multiply it by this figure to get a sense for the expected revenue of your business. The average small business actually generates about $100,000 in revenue per employee. For larger companies, the average is closer to $200,000.
3. What is the average profit margin of a small business?
The average net profit margin of a small business is around 10%.
Again, there is a wide range of net profit margins from negative through to 50%. But it shocks most small business owners and most people to learn that the average net profit margin is so low. More important than the average for all small businesses, is the industry standard for your industry. You want to compare your performance to the industry benchmark, to get a real sense for your relative performance. This will tell you if there are improvements to be made to your business.
4. How much profit does the average small business make per year?
The average owner of a small business receives a salary of $70,000 per year.
Even more interesting is that 86.3% of small business owners make less than $100,000 a year in income. Most people become small business owners to be their own boss and have the freedom to make their own decisions. This is not a get rich quick scheme.
5. What are the biggest costs for the average small business?
The biggest costs for small businesses are the cost of goods sold (40-50% of revenue), employee salaries and wages (20-30% of revenue) and rent (10% of revenue).
Business owners know that part of managing a business is constantly staying on top of costs and finding ways to reduce expenses while at the same time keeping your product and customer service quality high. It’s a constant juggling act.
6. Which target customer is best for a small business?
Loyal customers spend 67% more with a business than new ones.
This question is a trick one. Broadly across all small businesses it is impossible to say who the best target customer is. But when thinking about it as the type of customer, it becomes clear that return or repeat customers are the best target customers where small business owners should be investing their time and effort.
Even better, 60% of loyal customers will purchase more frequently from their preferred businesses and 77% of customers have maintained loyal relationships with their preferred businesses for 10 or more years. So your investment will pay off, and last a long time.
7. How many employees does the average small business have?
The average small business has between 3 and 10 employees.
Again, this statistic can be misleading so be careful how you use it. It depends on the definition of a small business (some say 0-50 employees, others use firms with less than 500 employees), and whether you include businesses with no employees.
When talking about small business employees, it’s important to know that 52% of the business owners believe that the most important problem for small businesses is labor quality. Finding, hiring and keeping qualified employees is the real challenge that business owners should have strategies in place to navigate.
It can cost $2,000 to replace an employee, and up to $15,000 to replace a manager so employee retention is really important to business owners.
8. What are the top reasons why small businesses fail?
Over 50% of new businesses fail within the first 5 years of starting.
The top reasons new businesses fail is because of a lack of market demand (42%), running out of cash due to lack of appropriate financing (29%) and then in descending order finding the right team, competition, cost-related issues and a subpar product offering.
Business owners need to make sure there is a need for what they’re offering, that the product offering stays up-to-date with customer needs and preferences, and that they have the appropriate resources to start and stay in business.
9. Should small businesses use technology?
Small business owners that fully utilize technology earn 200% more revenue per employee.
It gets even better, these businesses experienced nearly 4x the revenue growth annually, and were almost 3x more likely to create jobs in the next year.
The right technology investments pay off. It’s as simple as that. But business owners need to make sure that they make the right investments in technology.
10. What is the average cash position of a small business?
The average small business with monthly expenses over $10,000 only had enough savings to last roughly two weeks.
This means that the average business with $120,000 in yearly expenses only keeps a cash position of $20,000. These are fine margins to operate a business on and luckily, there are a number of financing options available for businesses that hit a rough patch or get into a bit of trouble. But an eye-opening statistic nonetheless.
Summary: Business Owner Statistics
- The average small business owner uses $10,000 in startup capital.
- The average small business generates $900,000 in revenue per year.
- The average net profit margin of a small business is around 10%.
- The average owner of a small business receives a salary of $70,000 per year.
- The biggest costs for small businesses are the cost of goods sold (40-50% of revenue), employee salaries and wages (20-30% of revenue) and rent (10% of revenue).
- Loyal customers spend 67% more with a business than new ones.
- The average small business has between 3 and 10 employees.
- Over 50% of new businesses fail within the first 5 years of starting, with 42% of those failing due to lack of market demand.
- Small companies that fully utilize technology earn 200% more revenue per employee.
- The average small business with monthly expenses over $10,000 only had enough savings to last roughly two weeks.
As a new or existing small business owner, these statistics will give you a good idea about the environment and challenges you face.
I firmly believe that if you operate with an understanding of the market and realistic expectations, you are much more likely to find success. I hope you’ve taken one giant step towards a better understanding of small business today.
Before you go...
We all know that small business is about doing the little things right.
The little optimisations, the high-impact tweaks and the 1% gains you can make to your business to make it a little better, a little more profitable and even a little bit more pleasant to run.
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