The post-pandemic world is witnessing a surge in home-based startups and with good reason. Ideally used as low-cost incubators, home businesses offer entrepreneurs with many economic and social advantages that traditional brick-and-mortar businesses don’t.
Market Outlook
The year 2022 marked the second-consecutive year of record-breaking employee quits. An estimated 50.5 million people resigned from their jobs, paving the way to a labor trend known as 'The Great Resignation'. The U.S Bureau of Labor Statistics has never witnessed such a radical phenomenon in its 22-year history.
These voluntary quits have largely been a result of low pay, lack of schedule flexibility, lack of opportunities, lack of respect, number of hours, and even childcare issues; Pew Research Center notes.
To offset this movement, employers have raced to improve their wages at the fastest pace. ADP Research Institute shows that U.S wages for employees who switched their jobs increased by an average of 8%, a record-high figure. Even those who stayed received wage increments of an average 5%, despite the rising inflation and recession fears. Yet, lessons learned from the pandemic means many employees are no longer looking for traditional 9-5 jobs.
Instead, despite the economic downturn, the year 2020 witnessed 4.4 million applications for businesses filed by Americans. A record high was set in the year 2021 with 5.4 million applications filed, a 53% increase from 2019. This startup surge is a dramatic deviation from previous economic downturns such as the Great Recession which witnessed declines in startups instead.
As such, these small businesses contribute 44% to the GDP of the U.S. With the current market outlook, startups continue to grow, with 77% of small business owners remaining optimistic about the future. Rightly so, Guidant Financial notes that over 65% of these small businesses have been successful as of year 2022, up from 40% in 2018. The pandemic has undoubtedly helped these entrepreneurs take challenges head on, with technology, digital tools, and artificial intelligence fueling their businesses at an unprecedented pace.
The numbers across industries vary, with the healthcare industry and food services being the most popular sectors experiencing business growth. Businesses such as SEO and ecommerce are also popular considering their low startup costs and favorable profit margins.
Why the Startup Splurge is Good for the Economy
The U.S Small Business Administration (SBA) notes that 99.9% of all businesses across the US are small businesses. Out of these, 50% begin at home. These small and home-based businesses have been responsible for creating over 12 million jobs in the last 25 years, with 8.7 million jobs created between March 2020-21 alone.
These businesses are also the testing laboratories for innovation, providing many with the opportunity to become their own boss. In a report by Guidant Financial, 29% of entrepreneurs stated they made the “big leap” so that they could become their own bosses while 23% did so because of their general dissatisfaction with the Corporate America.
With a home-based business, the commute becomes non-existent, and entrepreneurs can control how long and when they work. Additionally, there are no leasing costs, no costs for a physical location, plus the tax benefits.
However, despite the huge savings and low capital associated with home-based businesses, over 50% of small businesses still fail by Year 5. Lack of market demand and running out of capital are found to be the two most quoted reasons for failure. CNBC notes that 52% of respondents also quoted labor quality as a challenge that influenced their business success.
A home-based business seems to be a potential solution for these challenges. With most home-based businesses starting with even less than $5,000, many micro-businesses can be started with $3,000 only. Some of these include e-commerce businesses that can be run on platforms like Amazon.com, Inc. (NASDAQ:AMZN), Etsy, Inc. (NASDAQ:ETSY) and Shopify Inc. (NYSE:SHOP).
Labor quality is also a meager issue since 27.1 million businesses consist of only one owner and no employees anyway.
Moreover, self-financed businesses have also increased to 17.5%, a trend leading to the likelihood of even more successful startups. By using home as a location for business and through self-funding, entrepreneurs boost their chances of survival up to 3 years by a whopping 70%, U.S Census Bureau notes.
As evident, starting a business from home can be a profitable endeavor. While different industries have varying profit margins, you can always find one that suits you best.
With this backdrop, let's move to the 10 most profitable businesses to start from home.
10 Most Profitable Businesses to Start from Home
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Methodology
We have defined the most profitable businesses to start from home based on their highest mean net margins. In this respect, we have relied on CSI Market and NYU Stern School of Business, amongst others, to derive the profit margins. Next, we have ranked the businesses as such, in an ascending order with the highest profitability.
Here are the 10 most profitable businesses to start from home.
10. Online Tutoring
Average Net Margin: 7.17%
With the rapid adoption of smartphone technology, learning has broken all traditional boundaries. Tutoring services can be offered from the comfort of people’s homes with only a smartphone and an internet connection. Online tutoring platforms have facilitated learning to an extent that mean net margins of 7.17% can be achieved through this business, Polymer Search reports. Moreover, tutors can earn up to $180/ hour depending on what they are teaching.
As of Year 2022, the global online tutoring market size was valued at $7.69 billion. Moreover, Grand View Research reports that this sector will witness growth at a CAGR of 14.9% between 2023-2030. According to Gitnux, Google Classroom was the most popular learning and education app as of Year 2021, garnering 75 million downloads. Meanwhile, Chegg, Tutor.com and Princeton Review are all notable online tutoring service platforms to make money from.
In addition to home tutoring, entrepreneurs with a teaching background can also sell their courses on platforms like Amazon.com, Inc. (NASDAQ:AMZN), right from the comfort of their homes.
9. Food Business
Average Net Margin: 9.28%
Home-based food businesses have been gaining traction thanks to the pandemic. As such, food platforms such as Foodnome are helping members to get restaurant permits so that they can start their food business from the comfort of their homes. The NYU Stern School of Business notes that the restaurant and dining industry can make an average net margin of 9.28%.
Currently, the food service market is valued at $2,540.05 billion in 2022, growing at a CAGR of 10.76%, Fortune Business Insights notes. Such home-based food businesses offer customers a chance to try out home cooking. Moreover, entrepreneurs can get a chance to showcase their talent with minimal startup investment required.
8. Home Improvement
Average Net Margin: 9.65%
The home improvement business is performing well regardless of declines in the housing market. Growing by 6.5% through the third quarter of 2023, entrepreneurs can easily make average net margins around 9.65% on average in home improvement businesses.
As such, the market value for home improvement is projected to exceed $600 billion by the year 2025, Statista notes. Services such as interior décor, home inspection services, and even apartment prepping can be started from home using digital technology tools. Virtual 3D models can be effectively used to help clients choose and remodel their homes. This implies that entrepreneurs only need a small amount of office space that their homes can easily accommodate.
7. Ecommerce
Average Net Margin: 10%
The global e-commerce market is valued at $16.6 trillion as of year 2022, reports IMARC Group. With a CAGR of 27.43% between 2023-2028, this sector is experiencing a boom due to increased internet penetration, access to e-commerce platforms with a smooth shopping experience, and use of smartphone devices.
Home businesses can enjoy an average net margin of 10% with just a little overhead and a solid business plan, Shopify Inc. (NYSE:SHOP) notes. From selling printables on Etsy, Inc. (NASDAQ:ETSY) to running a dropshipping store on Shopify Inc. (NYSE:SHOP), and even building a successful subscription box company, the list of profitable e-commerce businesses is quite exhaustive.
Online retail is another lucrative business where sellers can showcase their products on platforms such as Amazon.com, Inc. (NASDAQ:AMZN). Moreover, handcrafted items are another e-commerce category enjoying margins as high as 50%.
6. Real Estate
Average Net Margin: 12.67%
The real estate market holds significant potential for home-based businesses. Services such as property watch and real estate rentals are generating average net margins of 12.67%. As of 2022, the global real estate market value stands at $3.81 trillion, expanding at a CAGR of 5.2% from 2022-2030. An estimated nine out of 10 real estate brokers are now using websites to sell properties, National Association of Realtors note.
This is a great opportunity for people who are well-versed in properties around them, providing a unique perspective to clients in real estate. While these offices can be started from home, business owners will still need to make property runs and provide home checks occasionally. Rental businesses, moreover, can make use of rental platforms such as Airbnb to showcase their properties.
