Freight brokerages are able to generate substantial revenues in any economic climate. One of the primary strengths of these businesses is that they can be started at a relatively low cost. Any individual that has an extensive amount of experience in the field of freight load placement can easily work with shippers in order to arrange a proper freight carrier to transport the merchandise. Generally, these businesses have startup costs that range anywhere from $15,000 to $100,000 depending on the number of agents that will be hired at the onset of operations. These businesses are able to generate substantial contribution margins from each engagement that they arrange between a shipper and a carrier. Typically, these businesses receive a fee equal to 10% to 15% of the total face value of the transaction. These substantial contribution margins allow freight brokerages to remain profitable even during times of economic recession.
One of the other positives about this industry is that they have become far more efficient through the use of state-of-the-art technology. Years ago, this business was far more complicated given that freight brokerages needed to coordinate with numerous carriers in order to understand their capacity for taking on additional loads. Today, technology allows carriers to indicate that they are available four engagements and loads can be very quickly placed. Additionally, GPS tracking has also allowed the industry to operate with a far greater degree of stability as there are fewer issues related to load loss. All trucks can now be tracked in real time.
As will be indicated in the opportunity section, freight brokerages are highly scalable businesses. There are numerous ways to drastically expand the revenues of these entities, especially through increased marketing, acquisition of existing books of business, hiring of additional agents, and engaging in niche freight brokerage activities.
Weaknesses
As it relates to weaknesses, these businesses are highly competitive period as they essentially act as a middleman between shippers and carriers. There is an intense amount of competition related to developing ongoing relationships with companies that have frequent freight transportation needs. As indicated above, one of the primary strengths is that these businesses can be started at a very low cost. This is also a weakness for the business as there are low barriers to entry. Additionally, profitability can vary based on the prevailing per mile cost for both long distance and short distance free arrangements.
Opportunities
There are numerous opportunities available for freight brokerages to expand their operations. First, these businesses can substantially increase their book of business through ongoing expansions of their marketing campaigns. Most importantly, these entities need to develop ongoing relationships with wholesalers, distributors, and retailers that have ongoing freight transportation needs. While this can be an expensive endeavor up front, once ongoing relationships are developed – these relationships can produce a highly predictable stream of revenue for a freight brokerage business. Second, there is also the possibility that an entrepreneur within this field can acquire existing businesses that are already in operation. There are numerous platforms that showcase businesses for sale and freight brokerages are one of the types of companies that frequently are bought and sold by businesspeople within this industry.
Additionally, free brokerages can develop internal units that specialize in specific types of freight such as hazardous materials, refrigerated freight, perishable goods, as well as chemicals and industrial parts. Additional specialties include providing service on a very rapid basis, especially for time sensitive products that need to be delivered quickly.
Threats
As it relates to threats, these are generally few and far between for most freight brokerages. Although economic recessions can cause downward revenue pressure given that there is less demand for the transportation of consumer goods, the substantial contribution margins that are generated through freight engagements are able to allow these businesses to operate at a profit and with a positive cash flow at all times. The primary threat that is faced by these types of businesses is usually competitive in nature. It is imperative that the owner of a freight brokerage maintain streamlined operations so that engagements can be fulfilled quickly using state-of-the-art technology.
Bookkeeping practices are businesses that play a vital role in helping small businesses ensure that companies operate properly. They are also incredibly important from a tax standpoint as proper documentation regarding sales and expenses are required to be submitted to taxing authorities on a quarterly and yearly basis. One of the nice things about owning and operating a bookkeeping practice is that their revenues are generally immune from negative changes in the economy. For small business owners, doing the bookkeeping on their own is a very time-consuming task that is better outsourced to a third party. Additionally, many bookkeeping practices are able to work in tandem with certified public accountants in order to ensure that proper tax filings are conducted when necessary.
The startup costs for a bookkeeping practice are relatively low as well. Any individual that has a background in accounting can start their own business for as little as $1,000 to $2,500. What is primarily needed is a website as well as specialized software for inputting revenues and expenses. In some instances, an entrepreneur may want to establish a larger business from the onset of operations. In these cases, the startup costs can range anywhere from $10,000 to $50,000 depending on the number of staff bookkeepers that are going to be hired to render services to the company’s clients. This larger amount of capital is also required to conduct a more comprehensive marketing plan in order to onboard small and medium-sized businesses within the Company’s target market.
From a business ownership standpoint, bookkeeping practices are outstanding businesses to own among people that want to keep their own hours. Although in many instances bookkeepers are required to go to their client’s location to source the necessary paperwork – the vast majority of work can be completed in a home office or in a small commercial space. For people that need a substantial amount of time flexibility, bookkeeping practices provide them with this degree of freedom while also producing highly recurring streams of revenue that they can count on for years to come.
Weaknesses
As it relates to weaknesses, these businesses face ongoing competition in any local and regional market. Although there are low startup costs for starting these types of companies, any person with a background in accounting can effectively render bookkeeping services. As such, it is imperative that a new bookkeeping practice engage in a multifaceted marketing campaign to effectively secure an ongoing client base. Given that these businesses generate recurring streams of revenue, once a client base is established the ongoing risks decline drastically.
Opportunities
For opportunities, there are numerous ways that a bookkeeping practice can expand their operations. Foremost, they can expand the scope of their marketing campaigns so that they are able to generate interest among small business owners within their respective markets. Second, given the availability of online communication channels – these businesses can rapidly expand their operations by providing their services on a virtual basis. In fact, one of the major trends within this industry is to do just that. As nearly all transactions and expenses are recorded using electronic means, bookkeepers have the ability to expand the scope of their practice by providing services to companies that are outside of their target market area.
An additional method of growth can include providing tax preparation services during the Spring and Fall months while also providing payroll services. These additional revenue streams produce recurring streams of revenue as well as substantial profits during busy tax seasons.
There is also the opportunity to partner with certified public accountants that want to be able to provide bookkeeping services to their clients without having to directly hire an individual to work on staff. By operating a subcontracted capacity, bookkeeping practices can rapidly expand the number of clients that they provide service to on a monthly basis.
Threats
As it relates to the threats, outside of competitive matters there are really no major issues that are facing the industry. While there are technological changes that improve the efficiency of bookkeeping, human interaction and verification of transactions is still needed. This is especially important for high volume businesses or companies that deal with very large invoices.
In regards to economic threats, severe and sustained economic recessions can have downward pressure on the industry as small businesses close. However, this risk can be ameliorated by working with clients among a wide range of industries including among businesses that are not impacted by negative economic changes such as healthcare businesses, dental practices, law practices, and other entities that are required in any given economic climate.
One of the most positive aspects of a notary business is that their services are required in any economic climate. This is due to the fact that people are going to need to have contracts, wills, trusts, and other important documents signed in front of a nonpartisan individual who can attest to the fact that the parties that signed the document have been verified. Even during highly challenging economic climates, the demand for notarized services remains incredibly strong.
Additionally, the startup costs associated with becoming a notary and offering the services of a notary public are very low. These businesses can be started for as little as $1,000 which includes any necessary coursework that is part and parcel with becoming a notary public. There are very low barriers to entry for this type of business. These companies can also generate highly predictable streams of revenue as they establish relationships with entities that frequently need notaries such as law firms, independently practicing attorneys, automotive businesses, title companies, and other entities that deal with contracts.
It should be noted that in certain instances some individuals that are starting notary businesses will often choose to do so on a much larger scale from the onset of operations. This includes having several independent notaries on retainer so that services can be offered in a wider geographical area. In these instances, the startup costs for a notary business can reach up to $25,000 depending on the amount of initial marketing that will be conducted in order to establish an ongoing client base.
Weaknesses
As it relates to weaknesses, these businesses have very low barriers to entry (which is concurrently a strength among people seeking a low startup cost business). The amount of time that it takes to become a notary public is very small. As such, this has caused a substantial amount of competition in the market, including online providers. It is imperative that a notary that is looking to scale their operations maintain an expansive traditional and online focused marketing presence so that they are able to effectively establish a client base among companies that have ongoing needs for notary services as well as the general public (as they need these services from time to time). Although there are potential liabilities from not properly rendering notary services, these matters are relatively negligible, and most states require that a minimal bond is held to address any potential future liabilities.
Opportunities
Opportunities for expanding a notary business are immense. Foremost, these businesses can operate in an agency capacity where they maintain a roster of state-licensed notary publics that are able to provide their services on behalf of the company. Once a business has established a substantial and ongoing client base these firms can easily scale their operations by independently contracting individuals that can operate in this capacity. Additionally, one of the major trends within this industry is to provide services in an online capacity. As a result of the pandemic, many states have allowed video-based notarizations to occur. This can substantially boost the revenues of a notary business as they can provide their services throughout the entirety of the state in which they are licensed to provide these services.
Another way that these businesses can expand their revenues is by offering services on a mobile basis. This is especially important for notary businesses that are focused on providing their services during the course of home and property sales. The ability to directly travel to a client’s site to render these services provides these companies with a major differentiating factor. Additionally, notaries can charge for the amount of time they spent traveling to a specific site to conduct their operations. As many states have regulations regarding the specific amount of money that can be charged for the services of a notary public, this can be a very important secondary revenue center that leads to greater profits.
Most importantly, and as touched on above, ongoing marketing is the key for any notary public to boost their revenues. Many of the companies that operate within this industry will aggressively use social media as well as specialized SEO services to increase their online visibility. Beyond simply expanding the number of engagements that the business receives for notarization services, many entities will also offer complementary services such as operating as a registered agent or conducting specialized filings as it relates to the purchase and sale of vehicles. These ancillary revenue streams can further increase profitability while contributing to a greater level of economic stability.
Threats
As it relates to threats, there’s really nothing that would impact the way that a notary will conduct business. The primary threat that any notary public business faces is simply that there is a significant amount of competition within the market. During challenging economic climates these businesses tend to remain stable given that transactions that require notarization still needs to be completed as well as for important legal documents. There may be some slight downward pressure as it relates to providing notary services for new home purchases. However, these businesses typically have very low operating costs and even during an economic recession they are able to remain profitable and cash flow positive.
Montessori schools have become extremely popular among parents seeking to instill a sense of individuality within their children in an environment that promotes self-directed learning. The philosophy pioneered by Maria Montessori has been adopted by many educational professionals throughout the United States. One of the principal strengths that Montessori schools have is that they are able to very quickly generate a substantial enrollment, especially among areas that are wealthy and population dense. An additional strength of a Montessori school is that they are able to produce highly recurring streams of revenue from the ongoing tuition as well as ancillary fees that are associated with early childhood education centers.
As it relates to startup costs, these can vary substantially based on the size and scope of the school as well as the market location. In smaller market areas, the startup costs can range anywhere from $100,000 to $200,000 depending on the size of the facility. For entities that are going to have operations conducted from kindergarten through eighth grade, these facilities can often exceed startup costs of $1 million or more. As it relates to financing, most financial institutions are reasonably amenable to providing the necessary capital to establish these operations. This is primarily due to the fact that these businesses produce highly predictable and recurring streams of revenue which are only at risk during very severe recessions.
Weaknesses
For weaknesses, Montessori schools typically have very high operating costs as a function of their revenue. These institutions are required to hire qualified teachers that understand the Montessori method. Furthermore, these businesses also have significant operating expenses related to facility maintenance as well as general facility costs. In major market areas, there are usually a number of other Montessori schools that are in operation and the owners of these businesses must find ways to effectively differentiate themselves within the market.
Opportunities
There are numerous opportunities for a Montessori school to expand their operations. Foremost, once the initial facilities reach their maximum capacity the owners can establish additional locations outside of the initial target market radius. For a Montessori school, the typical market radius is approximately ten miles. Additionally, for Montessori schools that established their operations with a focus on early childhood education – these facilities can expand the number of raids that are offered typically through eighth grade.
There is also the possibility that existing preschools or private schools can be acquired and rebranded under the Company’s name while also integrating the educational philosophy of Maria Montessori into their academic operations.
Threats
As it relates to threats, the primary issue faced by these businesses is competition. As noted above, in wealthy market areas there are usually a number of Montessori schools that are in operation. Beyond competing with academic institutions that apply the same type of philosophy, there is also competition among other entities that apply other philosophies such as the Waldorf method or the Reggio Emilia approach.
As it relates to threats regarding the economy, most parents view their child’s enrollment in a Montessori school as an absolute necessity for their development. However, very severe economic climates can impact ongoing demand for new enrollees. Additionally, during very substantial economic recessions some families may no longer be able to afford the tuition and costs that are associated with the company’s operations. As such, it is imperative that any owner of a Montessori school keep highly controlled operating costs in order to address potentially challenging economic climates.
Similar to any other type of health care business, veterinary practices are able to remain profitable in any economic climate. Over the past 50 years, household pets have become far more ingratiated with human lifestyles especially within highly developed countries such as the United States. These practices are able to produce substantial streams of high margin revenue by rendering a wide range of diagnostic and surgical services specific for the needs of animals. Additionally, these businesses are able to provide services for the needs of farms that are located within a 10-to-15-mile radius of the practice’s location.
An additional strength for these businesses is that there is a very high barrier to entry given the amount of education and licensure that is required to practice as a veterinarian. In most states, only individuals that have completed veterinary medical school and maintain a valid license are allowed to own these types of businesses.
For veterinary practices, access to capital is relatively straightforward. As this is a healthcare focus enterprise, many financial institutions are willing to provide ongoing capital support for these businesses given their substantial contribution margins and the fact that they’re able to produce significant incomes in any economic climate.
As it relates to startup costs, these can vary substantially based on the location of the veterinary practice and the scope of services that will be rendered on site. For a full-scale animal hospital, these startup costs can range anywhere from $500,000 all the way through $2,000,000. These types of locations typically have a number of surgical suites as well as diagnostic equipment to render the full range of services that are provided by a veterinarian. Smaller scale practices can be started for $100,000 to $250,000 depending on the amount of surgical equipment and diagnostic equipment that will be purchased. For smaller scale markets, usually veterinary clinics operate in a more modest capacity given market demand.
Weaknesses
As it relates to weaknesses, veterinary practices do have very high payroll costs. Beyond providing a salary for the practicing veterinarian, a number of veterinary technicians as well as administrative staff are required to ensure that the practice runs smoothly on a day-to-day basis. This is principally the only weakness that is faced by a veterinary practice.
Opportunities
For opportunities, these businesses can rapidly expand their operations by hiring staff veterinarians to boost the year-on-year revenue. These businesses can also expand the scope of their marketing operations to on board additional clients on a yearly basis as well.
An additional avenue of growth is the development of new locations outside of the effective market radius of the initial veterinary practice location. Beyond these methodologies, there is also the ability to acquire existing practices that could be integrated into the veterinary practice ecosystem. Similar to receiving startup capital from a financial institution, banks are almost always willing to provide the necessary capital to complete an acquisition of an existing veterinary practice given their relatively low risk.
Threats
For threats, the primary issue that is faced by these businesses is ongoing competition within any given market. However, there is currently a shortage of veterinarians within the United States. As such, the establishment of a new veterinary practice typically faces minimal competitive issues as they establish operations. As it relates to economic risks, only in severe and sustained economic recessions there may be some downward revenue pressure as patients do not opt for highly expensive surgeries when needed. However, many people view their household pets as members of the family, and they are willing to pay a premium for exceptional service in order to ensure the health of their dogs, cats, birds, and other common household pets.
Used car dealers are in a unique position to operate in an industry that is able to generate revenue and profit in any economic climate. This is primarily due to the fact that during economic recessions, more consumers will acquire pre-owned vehicles rather than a new car as a result of their lower price. Over the past five years, the demand for pre-owned cars has steadily increased given issues that occurred that impacted the global supply chain. Additionally, in the coming months and years the demand will be further increased through changing global economic policy. Beyond the ability to generate revenue from the sale of vehicles, most used car dealers are also able to produce substantial contribution margins from vehicle repairs and specialized mechanical services.
The startup costs regarding the development of a new used car dealership can vary widely. Some businesses were able to start with as little as $250,000 which includes the development of a small lot as well as initial inventories. For well capitalized entrepreneurs, the startup costs for a new used car dealership can easily exceed $2,000,000 to $3,000,000 depending on the amount of inventory that they will initially carry. It should be noted that many financial institutions are willing to provide a revolving line of credit that allows for ongoing acquisitions of pre-owned vehicles. Additionally, there’s always the option to receive financing in order to develop a used car dealer lot as banks and financial institutions are always happy to provide capital when it involves a real estate purchase or development.
Weaknesses
For weaknesses, there are always a number of used car dealers with any city, town, or major metropolitan area. As such, used car dealers need to find ways to effectively differentiate themselves within the market. However, these risks are generally abated by the use of multiple online platforms to promote individual vehicles. The effective market radius for a used car dealer has drastically expanded over the past twenty years as many people can now use the internet to source the specific type of vehicle what they want. Additionally, the use of vehicle transportation services allows for transactions to occur on a national basis.
Another weakness regarding used car dealers is that they typically have moderately high operating costs as it relates to their facility expenses. Maintaining a large-scale lot that has a showroom is an expensive endeavor. As such, fiscally sound protocols need to be implemented in order to ensure that the used car dealer can remain profitable at all times.
Opportunities
There are numerous opportunities for a used car dealer to rapidly expand their operations. Most importantly, these businesses can use numerous online channels to promote the individual vehicles that they have in their inventory. Many used car dealers engage multiple forms of online advertising including highly targeted social media to effectively find customers for specific makes and models of vehicles. Furthermore, used vehicle dealers can expand their operations by establishing additional car lots especially if the business is located within a major metropolitan area.
One of the other ways that a used car dealer can expand their operations is through acquisition. There are tens of thousands of companies that are actively involved in the ongoing sale of pre-owned vehicles, and from time to time these businesses are put up for sale. As noted earlier, there is a substantial amount of capital support that a used car dealer entrepreneur can receive as it relates to purchasing existing operations that can be integrated into their respective ecosystems.
Threats
As it relates to threats, the primary issue that most used car dealers face is changes in the economy. Although economic recessions tend to benefit used car dealers, severe and prolonged economic climates that are very challenging can cause downward pressure on a used car dealer’s revenues. Additionally, one of the other major issues that these businesses face similar to their weaknesses is that there is a substantial amount of competition among companies that are looking to sell inventories of pre-owned cars. While the internet has made it much easier to market specific vehicles to the public, there are now a number of individuals that are engaged in this business as well.
Poultry farms are relatively immune from negative changes in the economy as chicken and eggs remain as a staple of the diets of most people. Once established, these businesses are able to generate highly recurring streams of revenue from the ongoing purchase orders that they receive from supermarkets and food related tailors within their respective markets. One of the major trends that has occurred over the past ten years is to source both chicken and eggs from local farms. These entities typically operate with higher gross margins as they are able to command a slightly higher price among people that are willing to pay a premium for sourcing their food on a local basis.
As it relates to the cost of starting a new poultry farm, this can vary widely depending on the scope and scale of the planned operation. A small farm could be started for as little as $50,000 while a large-scale poultry or chicken farm can cause as much as $1 million depending on the type of infrastructure that will be placed on the property. One of the positives about starting a chicken farm is that most financial institutions are willing to provide a substantial degree of capital support given that a majority of this funding is typically allocated towards real estate purchases as well as the development of onsite structures to carry out operations.
Weaknesses
As it relates to weaknesses, chicken and poultry farms have substantial degrees of complexity. Any business that deals with livestock is subject to have substantial issues especially if disease starts to spread on the farm. Additionally, there are numerous rules and regulations that must be adhered to on an ongoing basis giving that poultry and chicken farms are producing products that are meant for human consumption. As such, it is imperative that a chicken farm or poultry farm obtain proper legal guidance so that they can operate within the letter of the law at all times. Generally speaking, these businesses have moderately controllable operating costs. However these can spike depending on market conditions.
Opportunities
For opportunities, poultry/chicken farms are able to easily scale their operations by simply adding additional birds to their flock. However, there is a maximum capacity that can be dealt with at any given time. Generally speaking, there should be no more than 500 birds per acre of farmland. Beyond the simple expansion of the flock, chicken and poultry farms are able to easily secure ongoing capital to purchase additional land to expand their operations. There is also the possibility that an existing poultry farm can conduct an acquisition of a similar business which can then be integrated into the company’s ecosystem.
Threats
There are a significant number of threats that poultry and chicken farms face on an ongoing basis. Most importantly, inflation can cause the underlying operating costs of the business to increase especially as it relates to acquiring bulk chicken feed. This can become a very expensive endeavor if cost controls are not properly put in place to remedy these issues. Many chicken and poultry farms will maintain their feed production operations in house to a certain extent in order to reduce these risks.
As noted above, one of the other major issues that can occur is that disease can spread very quickly among poultry. This can decimate an entire flock of birds, which can cause significant economic disruptions for a poultry farm. As it relates to ongoing competitive issues, there are a number of national level providers of chicken and poultry products. These businesses typically benefit from economies of scale, and as such it is sometimes difficult to remain pricing competitive with competitors that are of much larger size. However, the current buying trend is benefiting small and local farms as most people want to source these products from family-owned businesses within their respective markets.
Once established, sports agencies are able to generate substantial revenues from their operations. In most instances, a sports agency receives a fee equal to 10% to 15% of the total face value of all transactions that are managed on behalf of the client.
As it relates to startup costs, these businesses typically do not require a substantial amount of capital to launch their operations. A sports agency can be established for $100,000 to $250,000 depending on the scope of the initial marketing budget. With that being said, many sports agencies’ founders have extensive experience in this field before they establish their own business. This is primarily due to the fact that sports agents need to have ongoing relationships not only with their clients but also a number of sports teams that are interested in recruiting them to play.
These businesses are also relatively immune from negative changes in the economy given that professional athletes need a substantial amount of guidance during the course of their careers in order to receive contracts. The revenues of sports agencies are highly recurring in nature. Additionally, the ongoing operating cost of these businesses is relatively low given that it is a personal service business that provides high impact representation services.
Weaknesses
As it relates to weaknesses there is a substantial amount of difficulty in establishing a new sports agency. Many of these firms go through substantial growing pains as they need to initially acquire top tier athletic talent in order to start to generate substantial revenues. However, once this breakthrough is achieved these businesses are able to rapidly onboard additional clients given that they will have a proven operating history of obtaining lucrative contracts on behalf of their clients.
One of the other major challenges of operating a sports agency is that there are numerous national and state-based regulations regarding representation services when working with professional athletes. In many instances, either the founder of the business is an attorney, or the sports agency will retain legal counsel in order to remain within the letter of the law at all times. This creates a higher barrier to entry that would be uncommon to other types of businesses.
Opportunities
For opportunities, there are numerous ways in which a sports agency can grow their operations. Foremost, these businesses can simply expand by increasing the scope and scale of their marketing operations, especially as it relates to scouting up and coming talent that is in need of proper representation. Additionally, there are numerous methods for non-organic growth to occur such as the acquisition of sports agencies and other entities that provide representation. Once acquired, these businesses can be seamlessly integrated into the ecosystem of an existing sports agency or similarly situated representation firm.
One of the other ways that sports agencies commonly expand their operations is by offering a number of additional services that complement the direct representation between the athletic client and their sports team. This includes providing services such as accounting management, financial management, specialized investment management, and other services that are frequently needed by individuals that produce substantial incomes. In many cases, sports agencies will coordinate these efforts with third party firms that can operate in a subcontracted capacity with the sports agency’s owner supervising their work.
Threats
As it relates to threats, these are relatively minimal for a sports agency business. Professional sports remain a popular form of entertainment in any economic climate as it is relatively low cost. Even during challenging economic climates, professional athletes are going to need comprehensive representation in order to maximize the value of their skills. The primary threat that is faced by most sports agencies is simply the ongoing competition among dedicated professionals that are able to render a number of services for their clients.
Software-as-a-service companies can be highly lucrative enterprises given that they produce recurring streams of revenue by rendering their services to both individuals as well as other companies. As a result of this recurring income, numerous software companies have adopted this business model in order to have regularity of their earnings on a month-to-month basis.
This model has not only applied to online driven enterprises, but also enterprise level software that is used within the framework of a desktop or laptop computer. Most importantly, the use of the software as a service business model (commonly referred to a SasS), provides the owners of these firms with substantial valuations once they establish a significant user base. Unlike traditional ecommerce websites that typically have price to earnings multiples of two to four times the previous year’s income, software as a service companies can often have valuations ranging from 5 to 8 times the prior year’s profit. For this reason, numerous entities have entered the field with this type of business model.
The startup costs for most software-as-a service enterprises are also relatively low. This is especially true if the founder or founders are highly experienced software professionals that are able to produce the underlying technology on their own. For state-of-the-art applications that can be deployed using the SaaS model, typical costs can range from $50,000 to $1,000,000 depending on the complexity of the software that is being offered. One of the most important things to note when establishing this type of software business is that a vast majority of the capital that is going to be required will be focused on marketing. Over the past ten years, there has been a substantial amount of competition that has entered the market. It is for this reason that these enterprises need to create unique software that will find an immense audience.
It should be noted that the common metrics that are applied when determining the viability of a SaaS company is monthly recurring revenue often abbreviated as MRR as well as annual recurring revenue which abbreviated as ARR. When approaching a potential funding source, these are the key metrics that should be shown within your business plan. Most importantly, an investor is going to want to see that the monthly recurring revenue increases significantly on a month-to-month basis while also maintaining a very high client retention rate. The most successful software as a service enterprises typically have a retention rate of 85% or higher on a per annum basis.
Globally, the software as a service industry continues to expand rapidly. As of this year, total industry revenues from software as a service enterprises are expected to reach $300 billion. The compounded annual growth rate of the industry is expected to remain near 15% over the next five years. One of the major benefits of operating this type of business is that they always have global reach. Any software entity is able to market their services on a global basis through multiple forms of online marketing including targeted advertisements on social media platforms (especially LinkedIn).
Below is an overview of recent statistics regarding the growth of the software as a service industry:
Weaknesses
As it relates to weaknesses, software as a service companies typically have very substantial ongoing business development costs as they need to continually improve their underlying software and technology to maintain their user base. Additionally, and as noted above, these enterprises have very substantial marketing costs. It is not uncommon for a SaaS enterprise to incur up to 50% of their total revenues as marketing expenditures within the early years of operation. One of the other issues that is commonly found among these types of businesses is that they need to maintain a very large customer service department in order to ensure that clients are satisfied with the specialized software-driven services being provided in order to keep the retention rate high.
Payroll costs can also be a significant factor for this type of business given that highly specialized software development professionals and information technology professionals are needed to properly develop and expand software modules for client use. In order to address this issue, many startup SaaS companies will typically work with third party entities that can produce software, or they will retain independent contractors that can develop specific aspects of the operations but do not operate as standard employees within the firm. Again, some of the most successful businesses within this industry were created by software professionals given that they can create the underlying technology on their own time without incurring any direct expenditure.
Opportunities
There are numerous opportunities for software as a service enterprises to expand their operations. Most importantly, the ongoing use of high impact marketing strategies to drive traffic to the business’ website as well as their respective application suites can be increased on a yearly basis. Additionally, new components that improve the user experience can be created on an ongoing basis period this not only ensures that the monthly retention rate remains high, but it will also contribute to greater word of mouth promotion especially as it relates to enterprise level software for use among large scale corporations.
There is also the possibility that a business that operates within this industry can conduct acquisitions of companies that operate in a similar or identical capacity. The internet has made it very easy for entrepreneurs of all sizes to find existing businesses that can be acquired and cost effectively integrated into their respective ecosystems. On this note, a software as a service business can also acquire companies that offer complementary services to expand the scope of the offerings of the firm. This is a very easy way to expand the value of these types of businesses, especially as smaller SasS firms can be acquired at lower price to earnings multiples.
As it further relates to expanding the operations of these types of businesses, many entrepreneurs will focus on their client’s pain points. In most cases, SasS firms typically render their services to other businesses. As such, software that is able to improve time efficiency, cost efficiency, or reduce business risk are typically the types of services that are most sought after by small businesses, medium-sized enterprises, as well as large corporations.
In fact, most successful business firms have an extensive market research component so that they completely understand the needs of each of their clients and how they can better improve their operations through state-of-the-art software. It is very important that ongoing client outreach is conducted so that new software modules as well as new services can be integrated cost effectively and with the intention of creating significant streams of occurring profit. In furtherance of expanding revenue, some entities that operate on a software as a service basis will concurrently offer specialized services that can be purchased on a one-time basis. This is very common among software as a service companies that operate in industries where products are sold. As an example, a software company that specializes in providing real-time listings of inventory listings on a global basis can integrate a service that would allow for direct communication with an overseas supplier for a fixed fee. Usage fees of this nature can further boost revenue as well as the overall valuation of any software company period
Beyond growth through increased marketing and acquisition, SaaS companies are able to easily acquire additional funding as needed. Once established and the initial monthly recurring revenues commence, there are a number of financing options that are available to entrepreneurs within this field. First, most financial institutions are willing to extend a revolving credit facility based on the anticipated receivables over a 12-month period. This is a very cost-effective way of obtaining financing in order to cover much of the marketing expenditures as well as the software development expenditures that are faced during the early years of operation.
There is also the possibility that a successful and rapidly growing SaaS firm can acquire ongoing funding through private investors such as private equity groups or venture capital firms. However, this type of financing can be extremely expensive. Most private equity firms or venture capital groups typically want to have a controlling interest in the business in order to ensure that it is expanding properly and within the framework of their anticipated rates of return. Once the business achieves profitability, more favorable terms from private funding sources can typically be acquired given that their risk is has been substantially reduced.
Once a SaaS software enterprise generates in excess of $50 million a year of revenue, there is also the possibility that they are able to carry out an initial public offering or IPO. Many entrepreneurs view this as the holy grail of business success given that they can have access to public markets for ongoing capital needs as well a ups for divesting shares at a substantial profit. While this is a possibility for highly established firms, the vast majority of SaaS companies typically are sold to third parties or are acquired by private equity firms once they achieve a substantial level of profitability.
Threats
The primary threat faced by a software as a service company is the ongoing competition that is faced as these businesses established their operations. Software development has become somewhat of a commodity over the past 15 years given that there are now a number of global software developers that are able to showcase their work to a worldwide audience.
As such, it is imperative for any software as a software service enterprise to find a unique niche within a specific field. For smaller entities, this is really the best way to thrive within this market given that larger companies that offer enterprise level solutions are extremely well capitalized and are able to more effectively market their services to larger entities.
As with any company, inflation and challenging economic climates are also a potential threat that are faced by these businesses. As it relates to inflation, this can cause upward pricing pressure on the underlying marketing expenditures that are needed to establish a client base. This can also contribute to higher personnel costs for both directly employed staff as well as independent contractors as they raise their rates in lockstep with inflation. Depending on the specific type of industry that the SaaS company is operating within, challenging economic climates can also limit demand for specialized services. It is very important that any new enterprise within this field tightly control their operating costs to ensure that they are able to remain profitable and cash flow positive.
Finally, an ongoing threat for SaaS businesses is that they need to continually understand and adapt to the continually changing business environment. It is no secret that economic conditions can change rapidly as well as trends within the technology industry. As a result of this, senior level management employed by software as a service companies need to be continually aware of changing market conditions so they can properly adjust their software or create new services that focus on the challenges that their clients face.
Pack and ship stores can be highly lucrative businesses that produce substantial contribution margins from multiple revenue centers. In many instances, these businesses operate as local business centers in addition to providing a wide range of logistics and shipping services for their customers. One of the primary strengths of this business is that their services are in need during any economic climate. People are going to continue to send packages to other individuals as well as businesses regardless of how the economy is doing. In most cases, pack and ship stores also provide customers with the ability to receive mail via private mailboxes. The fees from mailbox rentals are recurring in nature, and they substantially contribute to the ongoing economic stability of these types of companies.
An additional strength in regards to establishing a pack and ship store is there relatively low startup costs. Generally speaking, these businesses can be started for as little as $75,000 to $200,000 depending on the location. There is very little in the way of furniture, fixtures, and equipment that is needed to carry out the services offered at these locations. Additionally, virtually no inventory is required outside of packaging supplies.
Weaknesses
As it relates to weaknesses, the primary issue that is faced by pack and ship stores is that there is ongoing competition from local competitors as well as major national chains. The relatively low startup costs, while a strength in many respects, does allow most people to easily establish a competing business. As such, it is imperative that a pack and ship store integrates numerous services into their operations in order to maintain an effective differentiating factor. Although relatively immune from negative changes in the economy, a major economic recession can impact the number of packages that are sent during any given month.
Opportunities
For opportunities, there are numerous ways in which a pack and ship store can continue to expand its operations through the life of its business. Most importantly, pack and ship stores can integrate new business and personal services that produce highly predictable streams of revenue. Second, the business can operate as a registered agent for local businesses. Similar to how the recurring income is generated from mailbox rentals – operating as a registered agent for local businesses can also produce this type of revenue which further contributes to economic stability.
In addition to expanding the number of services that are offered, established pack and ship stores can easily expand the number of locations. Again, as a result of the low operating costs associated with these businesses – they are highly scalable. Generally, most entrepreneurs that operate these types of companies will typically space additional locations at least 10 miles apart.
Another potential methodology of expanding operations includes operating as a local courier service. In some cases, customers need same-day delivery of packages and parcels on a regional basis. Given that these businesses are heavily integrated into the field of logistics, substantial revenues can be produced by providing these types of specialized services which complement the overall operations of any given pack and ship store. The cost of integrating local courier services or last mile delivery services is relatively low given the infrastructure that would already be in place.
Threats
As it relates to the threats, the primary issue consists of addressing competitive matters within any given market. As mentioned above, there are a number of national level chains that have fully integrated services among thousands of locations. Again, it is important that a local chain integrate specialized services that can effectively provide a major differentiating factor. Although an economic recession could impact the revenues of a pack and ship store this risk is relatively muted given that many people order things online, numerous people operate ecommerce platforms that send packages from their homes to a customer’s location, and local small businesses always need a fixed address.
