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4 Best Practices Small and Medium-Sized Businesses Can Learn From Big Businesses
Small and medium-sized businesses looking to scale can take a page from the best practices that help big businesses thrive.
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The past year has presented a unique set of challenges for small businesses. Recent inflation spikes and lingering supply chain disruptions, particularly those causing productivity issues, continue to dampen profitability and stall growth for many sectors.
In this economic climate, understanding key revenue benchmarks becomes even more critical for small businesses to succeed and scale.
In this post, we’re rounding up the most compelling small business revenue statistics and exploring average revenue figures, profit margins, and industry variations. By comparing your business's performance to these benchmarks, you can identify areas for improvement and develop data-driven strategies to boost your revenue and build for the future.
American small businesses earn an average annual revenue of $1,221,884.
The average profit margin recommended for small businesses ranges between 7% and 10%.
Eighty-three percent of small businesses are not taking advantage of artificial intelligence.
The amount of baby boomers who own small businesses dropped by 7% over the past year, while millennial small business owners increased by 27%.
Many small business owners are feeling confident, with 77% saying their businesses will survive the current economy.
Accounting for 33,185,550 companies, 99.9% of all American companies are small businesses.
Small businesses power nearly half (43.5%) of the U.S. gross domestic product.
Small businesses created 62.7% of all new jobs since 1995.
Many small businesses generate substantial revenue—with the overall average across all US small businesses being $1,221,884—contributing significantly to the overall economy.
However, a significant portion of small businesses fall within the lower revenue brackets. Let's explore some key statistics to understand this distribution in more detail.
The average revenue for small businesses with no employees is $47,794, based on the 27.2 million such businesses that achieved $1.3 trillion in revenue in 2020.1
35.6% of all private sector revenue comes from small businesses, totaling $13.3 trillion.2
A 2023 survey of over 1,000 small business owners revealed 34% have a revenue of less than $50,000 and only 9% have a revenue of over one million dollars.3
Despite their size, small businesses generate a remarkable 32.6% of the known value of U.S. exports.4
Did You Know?The Small Business Administration (SBA) classifies small businesses as having under 500 employees, distinct from mid-size (500-999 employees) and large enterprises (over 1,000). |
It’s important to understand the relevancy of profit margins—which measure the amount of profit a company earns for every dollar of revenue—to a business's success.
Let's explore some key statistics on profit margins and other financial metrics specific to small businesses, and how they can impact your financial health.
The average small business owner brings in an annual salary of $69,647, exceeding the national average wage by 6%.7
For self-employed small business owners, the average annual income comes in at $51,816.8
A Bank of America survey found that 55% of small business owners achieved higher business revenues in 2023 than in 2022.9
Nearly two-thirds (around 65.3%) of small businesses in the United States were profitable in 2022.8
Over 46% of the $368 billion in small business loans in 2019 were under $100,000, suggesting a significant reliance on credit cards, which can strain profit margins across industries.10
Despite a challenging economic climate in 2024, with declining profits and historically low optimism, many small businesses remain resilient.
Researchers have noted a trend toward staff expansion and the implementation of digital marketing strategies, which suggests a focus on growth and building a strong foundation for the future. This trend may be partially influenced by the rise of millennial ownership, a generation comfortable with digital tools and potentially more willing to invest in long-term growth strategies.
But it’s also interesting to observe that a majority of small businesses aren’t applying artificial intelligence to their work. This slow adoption rate of AI leaves room for a potential gap in leveraging technology for further optimization.
Between 2023 and 2024, the number of millennial small business owners increased by 27%, while the number of baby boomer-owned small businesses dropped by 7%.11
Artificial intelligence is not being applied to business operations in 83% of small businesses.11
Significantly more businesses (30%) reported declining profits in May 2024, according to a survey from the National Federation of Independent Business (NFIB).12
However, a 2024 Guidant survey delivered results in direct contrast to the Optimism Index, with 77% of small business owners stating they are confident their businesses will survive the current economy.11
Among new small businesses in 2024, 58% are independent, and 42% are franchises.11
The landscape of small businesses is diverse, encompassing a wide range of industries. From the backbone of manufacturing to the vibrant world of leisure and hospitality, small businesses play a vital role in every sector.
The chart below details the distribution of small businesses across several key industries, according to the Bureau of Labor Statistics, and the total corporate profits each industry earned in the last quarter of 2023, according to the Bureau of Economic Analysis.
|
Industry |
# of Small Businesses With 500 Employees or Less |
Corporate Profits for Q4 2023 (in Billions) |
|
Manufacturing |
385,570 |
$780.8 |
|
Trade, transportation, and utilities |
2,045,299 |
$376.3 |
|
Information |
280,629 |
$200.6 |
|
Financial services |
1,052,076 |
$552.6 |
While the trade and transportation sector houses the most small businesses, the manufacturing industry stands out with the highest corporate profits. The massive profits seen in manufacturing over the past year are believed to be largely due to benefits seen from the Inflation Reduction Act.
The small business landscape is a powerful economic driver with a massive presence and significant job creation in the US especially. As they contend with challenges like inflation and staffing shortages, these businesses remain highly engaged in monitoring their financial performance.
In the U.S., 99.9% of all companies are small businesses, totaling 33,185,550 individual companies.2
Small businesses bring in 43.5% of the United States' gross domestic product.2
Representing 81.7% of all small businesses, over 27 million have no employees, often referred to as “nonemployer firms.”2
When asked how often they review their company’s financial statements and reports to track financial performance, most small business owners said weekly (34%), daily (21%), or monthly (19%).3
A 2023 survey shows the top concerns of small business owners to include: inflation and supply costs (75%), cost of healthcare for employees (69%), increased interest rates (57%) and workforce shortages (53%).14
Small businesses are responsible for 62.7% of net new job creation since 1995, with 17.3 million net new jobs created between 1995 and 2021.2
Small businesses in the US typically employ around 12 people, with a significant difference between newly established firms (averaging six employees) and those operating for over 20 years (averaging 60 employees).2
The overall landscape of small business is becoming more inclusive. Data suggests a continuing rise in small business ownership by diverse groups of people, including women, Black Americans, Hispanic Americans, and Asian Americans/Pacific Islanders.
Black business owners owned 3,589,567 small businesses in 2019, employing over 1.2 million and bringing in $217.3 billion in sales.16
Small businesses owned by Asian American Pacific Islanders totaled 3,032,516, employing over 5.2 million and accounting for $958.8 billion in sales.17
By 2021, 27.3% of all small businesses were family-owned, and the majority (72.8%) had less than 10 employees.18
There are currently almost 5 million Hispanic-owned businesses employing approximately 3 million workers, representing a 34% increase in Hispanic business owners over the decade before the pandemic.19
Nearly 1 in 4 new small businesses are Hispanic-owned.19
The journey to a million dollars in revenue requires dedication and strategic planning.
To help you achieve this, we put together a four-step roadmap to reaching that coveted revenue milestone. Each step features best-in-class examples, showcasing how other businesses have successfully unlocked revenue potential.
Disruptions in your supply chain can cripple your operations and damage your customer relationships. This is where proactive supply chain planning comes in.
By closely monitoring your inventory levels, supplier performance and industry trends, you can anticipate potential issues and develop strategies to mitigate them. This proactive approach ensures you have the materials you need to fulfill orders and keep your business running smoothly.
Case Study: Nutanix
Nutanix, an enterprise cloud computing company, struggled with siloed data and inaccurate forecasts due to reliance on offline spreadsheets. This hampered its ability to respond to changing market conditions.
Implementing Vena’s cloud-based planning platform helped them to quickly address these challenges. Its user-friendly interface, data integration with existing systems (Salesforce, NetSuite) and scalability allowed Nutanix to centralize its planning processes.
Vena became a hub for demand and supply chain activities, improving collaboration and data accuracy. Nutanix can now confidently forecast demand and adapt to market shifts, ensuring efficient inventory management and strategic growth.
The foundation of any successful business is a deep understanding of who you're serving. It's not about selling to everyone.
Focusing on a specific niche allows you to tailor your product, develop a precise marketing strategy and appeal directly to your customers' desires. This ultimately helps you build stronger relationships, allowing you to command premium prices.
Understanding which customers are your most profitable through data analytics can help you identify which audiences you should—and shouldn’t—be going after.
Case Study: MountainSeed
Real estate consultancy firm MountainSeed faced a challenge: limited visibility into their financial performance made it difficult to allocate resources effectively. Previously, revenue planning relied on analyzing "a massive grid of numbers," hindering the ability to identify trends and prioritize investments.
However, by implementing Vena, they were able to transform their operations with a new approach. By gaining insights into individual client profitability and product line performance, MountainSeed can now strategically invest in its most successful offerings. This granular view of their data allows them to identify new revenue opportunities and make informed decisions about resource allocation.
The ability to analyze trends in real-time has also proven valuable. MountainSeed can now detect clients at risk of churning and take proactive steps to retain them. This focus on customer retention has undoubtedly contributed to their success.
You might discover that a specific marketing channel isn't delivering the desired return on investment or that a particular supplier offers less competitive pricing. Monitoring your financial performance enables you to jump on opportunities to adjust your resource allocation accordingly.
Profitability hinges on managing your expenses effectively. Financial planning software tackles this challenge by offering a centralized platform to record, categorize and analyze all your business's financial data.
Case Study: Excision BioTherapeutics
Excision BioTherapeutics, a 30-person biotech startup, grappled with data integrity issues within their financial reporting, making it hard to get a handle on their budget. Manual data gathering took weeks, leading to outdated reports and hindering cost control.
By leaning on Vena’s financial planning software, Excision BioTherapeutics transformed its operations. Data aggregation went from multiple weeks to a single week, variance analysis time was cut in half and expense tracking capabilities uncovered cost-saving opportunities.
Sal Amato, Director of FP&A at Excision BioTherapeutics, states:
“As we grow, we will need to understand how our cash flow rolls into our P&Ls and differentiate between cash and accrual accounting … Our board is always interested in our cash position and so are our investors. Having a strong tool in place where we can capture our goals as an organization with our work streams and correlate that to our spend is very important to our Board."
Data is the key to unlocking growth for your small business. Identifying which metrics are the most crucial for your unique business and making those data points easily accessible to your team is essential for keeping a pulse on the business’s success.
For instance:
Customer Acquisition Cost (CAC) helps you identify the most cost-effective marketing channels.
A high Net Revenue Retention (NRR) indicates a loyal customer base, which is essential to long-term success.
And Human Capital Efficiency measures your revenue per employee, highlighting areas to improve training or streamline workflows.
Case Study: Sprout Social
A growing company, Sprout Social, realized its financial analysis needed an upgrade. It incorporated new metrics like CAC and lifetime value into their financial reporting with help from Vena to identify the most cost-effective ways to gain new customers. Additionally, efficiency ratios provided insights for optimizing operations.
This data-driven approach empowered the company to refine its customer retention strategies, fuel targeted marketing initiatives and confidently plan for ambitious future goals.
Small businesses are the backbone of our economy, driving innovation and job creation. By taking charge of your financial data, you empower your team to make informed decisions that propel your business forward.
You don’t need to tackle this journey on your own. With easy-to-use budgeting and forecasting tools like those offered by Vena, you’ll have a powerful financial reporting and planning platform specifically designed to meet the needs of your growing business.
Sources:
Census.gov (2024). Census Bureau Releases Nonemployer Business Data by Demographic Characteristics of Owners. Retrieved from https://www.census.gov/newsroom/press-releases/2024/nonemployer-business-data.html
SBA (2023). Frequently Asked Questions. Retrieved from https://advocacy.sba.gov/wp-content/uploads/2023/03/Frequently-Asked-Questions-About-Small-Business-March-2023-508c.pdf
Small Business Majority (2023). Digital transformation: Small businesses face obstacles, opportunities in utilizing digital accounting software. Retrieved from https://smallbusinessmajority.org/sites/default/files/research-reports/toplines-small-businesses-obstacles-opportunities-digital-accounting-software.pdf
SBA (2023). What’s New with Small Business. Retrieved from https://advocacy.sba.gov/2023/03/07/frequently-asked-questions-about-small-business-2023/
Investopedia (2024). What’s a Good Profit Margin for a New Business? Retrieved from https://www.investopedia.com/articles/personal-finance/093015/whats-good-profit-margin-new-business.asp
Capterra (2023). What is a Good Profit Margin for Small Businesses? A Comprehensive Guide for Entrepreneurs. Retrieved from https://www.capterra.com/resources/what-is-good-profit-margin-for-small-business/
Payscale (2024). Average Small Business Owner Salary. Retrieved from https://www.payscale.com/research/US/Job=Small_Business_Owner/Salary
Chamber of Commerce (2022). Small Business Statistics. Retrieved from https://www.chamberofcommerce.org/small-business-statistics/
Bank of America (2024). BofA Survey: Majority of Small and Mid-Sized Business Owners Anticipate Revenue Growth This Year. Retrieved from https://newsroom.bankofamerica.com/content/newsroom/press-releases/2024/05/bofa-survey--majority-of-small-and-mid-sized-business-owners-ant.html
JPMorgan Chase (2023). Cash or credit: Small business use of credit cards for cash flow management. Retrieved from https://www.jpmorganchase.com/institute/all-topics/business-growth-and-entrepreneurship/small-business-use-of-credit-cards
Guidant (2024). 2024 Small Business Trends. Retrieved from https://www.guidantfinancial.com/small-business-trends/
NFIB (2024). May 2024 Report: Small Business Uncertainty Index Reaches Highest Level Since 2020. Retrieved from https://www.nfib.com/surveys/small-business-economic-trends/
NFIB (2024). Small Business Optimism Reaches Lowest Level Since 2012. Retrieved from https://www.nfib.com/content/press-release/economy/small-business-optimism-reaches-lowest-level-since-2012/
Small Business Majority (2023). Small business and the State of the Union. Retrieved from https://smallbusinessmajority.org/sites/default/files/research-reports/2023-Small-business-and-the-State-of-the-Union.pdf
SBA (2024). Women Ownership Statistics 2024. Retrieved from https://advocacy.sba.gov/wp-content/uploads/2024/03/Women-Ownership-Statistics-2024.pdf
SBA (2024). Black Ownership Statistics 2024. Retrieved from https://advocacy.sba.gov/2024/02/01/facts-about-small-business-black-ownership-statistics-2024/
SBA (2024). Asian American Pacific Islander Ownership Statistics 2024. Retrieved from https://advocacy.sba.gov/2024/05/07/facts-about-small-business-asian-american-pacific-islander-ownership-statistics-2024/
SBA (2024). Small Business Facts: Characteristics of Family-Owned Businesses. Retrieved from https://advocacy.sba.gov/wp-content/uploads/2024/04/Fact-Sheet-Characteristics-of-Family-Owned-Businesses.pdf
Joint Economic Committee (2021). Hispanic Entrepreneurs and Businesses Are Helping Drive the Economy’s Entrepreneurial Growth and Job Creation. Retrieved from https://www.jec.senate.gov/public/index.cfm/democrats/2021/11/hispanic-entrepreneurs-and-businesses-are-helping-to-drive-the-economy-s-entrepreneurial-growth-and-job-creation
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