How to Start Your Own High-Profit Business

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A custom mineral makeup business may generate a high return on capital.
A custom mineral makeup business may generate a high return on capital. (Image: Jupiterimages/Photos.com/Getty Images)

A large business idea may start small. For example, Dell Computer's founder started with only $1,000 in 1984. Small capital outlay requirements for the business's product and demand allowed Dell to grow at an 80 percent rate for the first eight years, according to "Movers and Shakers: The 100 Most Influential Figures in Modern Business."

Starting a high-profit business requires an exceptional business idea. Study the competitive marketplace for your business idea. Evaluate your target buyer with care. Learn everything possible about the consumer's buying habits.

A business often generates high profits by combining high leverage--or use of borrowed money--and fast asset turnover. Borrowed money enables the business owner to invest less of his capital in the business. High profit margins, indicating a relatively low cost of goods relative to sales price, help a business establish a high level of profitability, according to author Mark Hirschey in "Managerial Economics."

A service business, such as specialist consulting business, has the potential to achieve high profits on relatively small amounts of invested capital, according to authors Leonardo Inghilleri, Micah Solomon and Horst Schulze of "Exceptional Service, Exceptional Profit: The Secrets of Building a Five-Star Service Organization." The business owner must know how to market ideas, such as consulting services, and continuously sell new and repeat business deals in order to generate cash flow.

Author Patricia Sigmon of "Six Steps to Creating Profit: A Guide for Small and Mid-Sized Businesses" offers practical advice about how to increase your profits. She recommends increasing sales by expanding the market for your service and implementing more vertical selling into your business model. Say your engineering consulting business has several key customers in the national market. International engineering practices need your services--perhaps in greater measure than the core domestic business. Deciding how to expand the market may entail working in real time with international customers on a virtual basis or spending time each month in the customer's offices. Selling vertically requires deepening existing client relationships and specializing on focus services.

Peri Pakroo, author of "The Small Business Start-Up Kit" recommends keeping close tabs on your gross profits and average profit margins. Say you run a small business that sells custom-blended facial-care products. The costs of your original product line--a specialty mineral makeup blended to perfectly match the customer's skin tone--remain low. However, you decide to add products from another vendor in the hope of extending your market. Unfortunately, the profit margins of the new products reduce your gross profits. To know where you stand, determine your gross profit margins for each product or service sold by your company. Calculate the average gross profit margin for the entire business by calculating the gross profit margin of each product or service, then dividing by the total number of items. Learn more about your customers' preferences by analyzing each product sold, not just "hot sellers." Give your customers more of what they want to earn high profits.

Tips & Warnings

  • Take time to study your competition.

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