Thursday, June 07, 2007

How much profit do small businesses earn?

New York magazine puts a few economists on the trail of various small businesses in Manhattan to identify their business models and see exactly how much money they make.

  • A private school earns a 10% profit on revenues, with about 54% of its revenue spent on salaries.
  • Cab drivers make only about $12K profit per year.
  • Discount stores (like Jacks 99 cent stores, or presumably like the Japanese dollar store in Seattle) earns $7M profit on $30M revenue for three stores.  Their costs are low because they procure goods that are essentially dumped on them for pennies by manufacturers who need to get rid of stuff.
  • Good sushi restaurant in a good location, serving 250 meals per day, earns $8.5M, of which $1.7M is profit. Most restaurants (like small pizzarias) make about 10% profit.
  • Yoga studios make $77K, with $24K in losses, so most are out of business within three years.  If you're an instructor thinking of starting a studio, it's much better to do private lessons instead.

Some other rules for starting a small business:  rent for a bar should be no more than your Friday night take and a restaurant's should be about one week's revenue.

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