How to Calculate Profit Margins (and Improve Profitability)

September 16, 2022

How to Calculate Profit Margins (and Improve Profitability)

Are you struggling to make the money you want with your business? Profit margins are the key to measuring and improving your financial success. Did you know some industries hit 50% net profit? We’ll show you how.

The average gross margin is 38.44% across 7,229 publicly owned companies, and the average net margin is 9.84%. But if you are a service-based industry, you can try to hit over 50% net margins to make a great living. 

Understanding margins will help you create a more profitable business model because you’ll be able to quickly identify where you can make improvements. 

In this article, we’ll explain:

  1. Where to find industry profit margins
  2. The seven most common equations for calculating profit margins
  3. Calculating industry profit margins
  4. Improving your business results by comparing your profit margin ratio to industry averages

What profit margins should you expect?

You’ll need industry benchmarks before you can possibly know whether your profit margins are high, low, or average. At UpFlip, we have access to three data sets we use regularly:

  1. IBIS World: Here’s their list of highest margin businesses. Their paid reports are phenomenal and are what is used in most blogs to help you get an idea of what your expenses should look like.
  2. NYU STERN: Analyzes 7,229 publicly owned businesses and publishes 17 different margins and percentages of revenue for each. They update the documents annually.
  3. UpFlip Featured Businesses: Our YouTube Channel and blog are full of business owners sharing how they run their businesses and where their costs go.

You’ll find great benchmarks that will help you establish how your margins are. 

What is the profit margin?

Profit margins measure the difference between business expenses and revenue as a percent of the revenue. There are eight types of profit margins you may want to monitor:

  1. Gross profit margin
  2. Net profit margin
  3. Operating profit margin
  4. EBIT margin
  5. EBITDA margin
  6. Product margin
  7. Sales margin

We’ll look at each of the profit margins and how you can better use them to manage your small business.

What is gross profit margin?

Gross profit is the difference between gross sales and the cost of goods sold (COGS). The cost of goods sold includes all raw materials, labor, and shipping that are incurred directly from the goods sold.

The gross profit margin is gross profit divided by the revenue. You may also hear it referred to as gross margin.

The gross profit margin formula is included in the following picture. I have also provided an example of how to calculate the gross profit margin:

Gross profit margin formula

Many service businesses use the gross profit margin to help employees create quick estimates.  With a gross margin of 50%, they can simply add the cost of their hours and the cost of the parts then multiply by 2 to get the quote price.

Why are restaurant profit margins so low?

This might be shocking to hear, but the average profit margin for the restaurant industry isn’t as low as you would think. Based on 70 publicly held companies, restaurants have average profit margins of 31.52%, operating margins of 15% to 18%, and a net profit margin of 12.63%.

A restaurant with a low-profit margin needs to review its pricing strategies, increase its revenue, or reduce its costs. 

Let’s look at net profit margins next.

What is net profit margin?

Net profit margin is probably the most common type of profit margin people will be interested in. Net profit is how much money the business made after all expenses including:

  • Cost of Goods Sold
  • Administrative and Marketing
  • Depreciation
  • Amortization
  • Interest
  • Taxes

You may also hear this called the net profit margin ratio or net profit ratio. The net profit margin equation and an example of how to calculate the percentage is shown below:

Net profit margin formula

This is what you hear companies report in the earnings reports and is the amount that would qualify as income to a small business owner who does not pay themselves a salary.

Is a profit margin of 20% good?

A 20% net profit margin is good in most industries, but in some industries, that profit margin is low, while in others, a good margin would be over 30% to 35%. If you’re asking about gross profit margin, 20% is a horrible margin for most industries. As a general rule, the cost of sales should be less than 60% of net sales.

Let’s look at the operating profit margin next.

What is operating profit margin?

Operating profit margin is measured as a percentage of operating income. The operating margin includes all income and expenses from operations but excludes:

  • Interest income or interest expenses
  • Returns and costs from investment in other companies
  • Taxes
  • One-time costs or gains like lawsuits

You’ll want to take the gross income and subtract the following operating expenses to find the operating income:

  1. Costs of Sales, General, and Administration (SG&A)
  2. Overhead Costs (OC)
  3. Depreciation (Dep) (how much your equipment and buildings go down in value based on their expected life)
  4. Amortization (Am) (lowering the book value of a non-physical asset)

The operating profit margin may also be called the operating income margin or operating margin. To calculate the profit margin for operations, use the formula below. I’ve also included an example of operating profit calculations:

Operating profit margin formula

The operating profit margin is useful because it helps businesses establish how well they are doing operationally. These can be used to compare different divisions of a company. 

If your operating profit is negative, then you will either need to increase revenue or decrease operating expenses––if not, it will create cash flow challenges. 

If you have interest income or dividends from another business, you will probably want to compare the operating margin with the EBIT margin. Let’s look at that measure of a company’s profitability next.

What is EBIT margin?

EBIT stands for “earnings before interest and tax expenses.” This will normally be similar to operating profit margins, but for companies with earnings from investments, you will want to compare the two. 

For instance, in some quarters, a large portion of Tesla’s profitability has been impacted by the price of Bitcoin. Comparing the operating profit margin and the EBIT profit margin would help you identify what profitability is from the company’s revenue and which is from investments.

To find the EBIT, just find the net profit and add the interest and taxes to the net profit. Then divide by revenue.

The equation shows how to calculate the EBIT margin with an example:

EBIT margin formula

I intentionally made this one where I could show you an absurd example of what could happen when comparing EBIT and Operating margins. As you can see from the two examples, the company lost 10% of its revenue from investment losses or a lawsuit. 

Another margin that can help business owners is EBITDA, which we’ll discuss next.

What is EBITDA?

EBITDA refers to “earnings before interest, taxes, depreciation, and amortization,” which is a way of separating the company debt from the profit margin calculation. This is especially beneficial if you want to buy a company with debt.

To find this ratio, you’ll add the depreciation, amortization, interest, and taxes to the net income. You can see how to calculate the EBITDA margin equation below:

EBITDA margin formula

I’ve been using the same numbers throughout to make the profits really easy to compare. As you can see, there is a lot of depreciation. I would not expect depreciation to be this high of a percentage unless the company is in the early stages and bought a factory to produce their products.

Speaking of products, let’s look at the product margin.

What is product margin?

Product margin is the profits on an individual product divided by the sales price. This is helpful for comparing product lines to determine:

  • Which new products should a business carry?
  • What products are best for upselling?
  • Should you consider getting rid of an offering?

This does not calculate the actual profits, but it lets you know how much of the sales price can go to other costs. Use the equation below to calculate product margins:

Product margin equation

What is sales margin?

The sales margin is similar to the gross profit margin, but it is calculated on a per product basis. It includes not only the cost of the product but other expenses like marketing costs and labor associated with achieving the sale. 

It may also be called the contribution margin, which we discuss in detail in our blog about calculating a business break-even point. The following formula is used to calculate the profit from each sale:

Sales margin equation

Ultimately, this equation shows how much increasing sales will increase your profitability. It will also show how many products you need to sell to cover your costs.

Next, let’s compare the net profit margin and the gross margin.

Net Profit vs Gross Profit

The two most commonly used profit margins are the net profit margin and the gross profit margin. Both of these matter to the performance of a company.

The gross profit margin is revenue minus the cost of goods sold divided by total revenue. As long as this is a positive number, then you can theoretically continue to justify running the business. There’s a catch though. 

If gross profit isn’t high enough to cover the additional costs that are included in net profit plus your living expenses, you’ll need another source of income to keep the business running. 

Meanwhile, the net profit margin is what most business owners will be focused on because it’s the amount they take home as profits for running the business. The higher it is, the easier it will be to grow the business. It’s just total revenue minus total expenses divided by total revenue.

How to calculate profit margins

I’ve explained how to find profit margins in each section but the general process is: 

  1. Find the revenue attributable to the type of profit margin.
  2. Calculate the expenses attributable to the profit margin.
  3. Use the formula in the picture below:

How to find profit margin

You might want to use a net profit margin calculator to help you with pricing your products and setting up automations to help you manage your finances more effectively. I use an Excel Sheet to calculate various margins when needed, but you can find online calculators, too. Of the online profit calculators, the Calculator Site is the most well made.

What are good profit margins?

A good profit margin will depend on your industry, but most industries will have the following ratios:

  • Gross Margin: 38.44% is average, but the range is from 1.41% for air transport to nearly 100% for money centers. 
  • Net Margin: 9.84% is average, but it ranges from a high of 32.61% for money centers to a low profit margin of -28.57% for hotel and gaming. The gaming losses were due to light travel and shutdowns during the pandemic.
  • Operating Margin: 10% to 14% is the average, depending on whether you want to include stock payments and taxes in the numbers. Like other margins, the range varies from -23% to as high as 45% operating margins. 

This information was gathered from NYU Sterns, which regularly analyzes the income statements of more than 7,000 companies to analyze financial ratios. The site shows the net margin, gross margin, and 15 other ratios to help you understand how publicly held companies in each industry perform. 

Make sure you compare your pricing strategies and company’s profits to the same industry to make sure you aren’t making pricing errors that will prevent you from generating profits.

Next, we’ll discuss how understanding the different types of profit can help you improve your company’s profit.

How can you improve profit margins?

Large businesses weren’t always as big as they currently are. Like every business, they normally start with no revenue. As the company grows, it finds new ways:

  1. Increase the revenue.
  2. Decrease the total expenses as a percentage of revenue.
  3. Make more net income, a byproduct of the first two.

Let’s look at how to increase company revenue first.

Increase Revenue

Gadgets and office supplies on the table

Finding ways to increase revenue can be challenging, but a net income statement can help you identify areas where you might be able to increase revenue. 

Some areas you may want to look at to improve profit through revenue increases include:

  • SG&A or Advertising Budgets: If your marketing percentage is less than the industry average, you may have an opportunity to increase your sales revenue through marketing. A higher SG&A is a sign of inefficiencies in your processes.
  • Product and Sales Margins: Set your product margins to be in line with the gross profit margin of the industry and then compare them to your current prices. 
    • High Current Price: Consider lowering it to meet the industry average margins. It might stimulate sales.
    • Low Current Price: Increase the profit margin to where you make more money per product.
  • Labor Cost Percentage: If the labor cost percentage is really low, you may need to hire more people to provide a better service and create more revenue. If you aren’t working at capacity, you may want to add new products or services also.
  • Sales Returns: If you experience lots of sales returns, you may want to figure out why. It will improve your efficiency and lead to more profit because returns still cost you money from transaction fees.

These are just some ways to increase your total sales. Now, let’s look at ways to lower your expenses.

Reduce Expenses

If your total sales are where you want them, but your cost of doing business is high, this will cause the company’s net income to be lower than you’d like. You’ll need to review your net income statement, which will look something like this:

Gross Sales $1,000,000.00 100.00%
Less: Sales Returns and Allowances $200,000.00 20.00%
Less: Cost of Goods Sold $300,000.00 30.00%
Less: Direct Costs (Labor, Shipping, Etc.) $100,000.00 10.00%
Gross Profit $400,000.00 40.00%
Expenses 0.00%
Less: Rent $60,000.00 6.00%
Less: Utilities $60,000.00 6.00%
Less: Other Wages $80,000.00 8.00%
Less: Commissions $10,000.00 1.00%
Less:  Supplies $5,000.00 0.50%
Less: Marketing $80,000.00 8.00%
Less: Logistics $20,000.00 2.00%
Less: Repairs and Maintenance $20,000.00 2.00%
Less: Miscellaneous $5,000.00 0.50%
Operational Profit $40,000.00 4.00%
Less: One Time Costs (lawsuits, purchase competitor, etc) $0.00 0.00%
Other Income (dividends, interest income) $20,000.00 2.00%
EBITDA $80,000.00 8.00%
Less: Depreciation $10,000.00 1.00%
Less: Amortization $10,000.00 1.00%
EBIT $60,000.00 6.00%
Less: Interest $10,000.00 1.00%
Earnings Before Tax $50,000.00 5.00%
Taxes (Assume 21% Corporate) $10,500.00 1.05%
Net Income (Loss) $39,500.00 3.95%

You’ll want to look for areas that are really high. In this scenario, you would want to find ways to reduce the returns, cost of goods sold, rent, and utilities. 

Let’s look at how dropping these expenses to the level of similar businesses would impact your net profit margin ratio.

  • Returns: Shopify estimates that returns are typically 10.6% of purchases. This reduction would increase gross income and net income to better than average percentages and make the business nearly $75K more after-tax profit. You’d need to find patterns that are causing returns and figure out how to correct them.
  • COGS: Reducing the material costs to 20%, which is a common recommendation for restaurants, would create a similar change as the returns. This would require finding lower-cost but comparable-quality vendors. 
  • Rent & Utilities: Using the final column of the NYU Sterns sheet, you can see that most industries would have 1.62% of their revenue dollar going to the lease. If you use that number for utilities too, it would increase the profit by nearly $70,000.

Combine all these changes, and you would turn $39,500 net income into over $261,000 which would be likely to attract investors in almost any industry.

Improve your profit margins for greater business success

At this point, we’ve answered the following questions:

  • What are profit margins?
  • How to find profit margin using the profit margin equation?
  • What is a good profit margin?
  • How do you find products with high-profit margins using the product and sales margin?
  • How can I decrease sales expenses?
  • How to improve net sales with an income statement comparison?

Now it’s up to you. Follow business news. Track your data. Look for seasonal patterns. Improve the profitability of your services. 

What strategies have you used to impact your gross and net sales? Which succeeded and which failed?

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One of the most crucial steps of starting a business is the process of getting a business license. You'll need to know how to get a business license so that you can run your business legally. Don't worry. We're going to explain the process. We'll cover some of the most pressing questions about business licenses including:
  • What is a business license?
  • How to apply for a business license
  • How much does a business license cost?
  • What types of business licenses are there?
  • Do I need a local business license, a state business license, or a business license from a federal agency?
We'll even explain how to get a local license or seller's permit from the state of California as an example of the processes you'll go through when you are applying for a local business license. Get ready to learn more about business licenses.

What is a business license?

A business license is a document provided by a local, state, or federal government that allows you to conduct certain activities within their jurisdiction. They may be one-time fees, annual fees, or have ongoing requirements. Let's look at some of the most commonly asked questions about business licenses.

Do I need a business license?

Short answer: Probably. The long answer should be broken into three sections:
  1. Federal business licenses
  2. State business licenses
  3. Local government licenses
Let's look at each.

Federal Business Licensing

For those of you who have read our article on how to register a business, the list of companies that will need a federal license will probably look familiar. They are the same companies you will have to answer questions about when applying for your employee identification number.  You'll need federal business licenses for: [su_note note_color="#dbeafc"]
  • Aviation will need licensing from the Federal Aviation Administration.
  • Agriculture, along with anyone involved in the sale of food that sells more than 2,000 pounds of fruit and vegetables in a day needs a PACA license.
  • Alcohol sales require registering with the Alcohol and Tobacco Tax and Trade Bureau. There are a lot of businesses that fall into this category.
  • Manufacturers and sellers of firearms and explosives need to get business licenses from the Bureau of Alcohol, Tobacco, Firearms, and Explosives (ATF).
  • Using oversized vehicles to transport products requires paying a use tax of $100-$550 per year according to USDOT.
[/su_note] Other than that, you don't need a federal business license. There's plenty more to learn about businesses.  We suggest starting here and then digging through the whole HUB.

State's Business Licensing Requirements

A white notebook with colored pens on a brown desk Most states require them for all businesses, but some only require them if you are in a certain field, such as these requirements in Florida. When I was living in Florida, I could have run a business without any licenses because I was in a location with no local business licensing requirements and I didn't sell any physical goods. The most common type of business license on the state level is a seller's permit or resellers license, but there may be more. Check with your Secretary of State office to find out the exact business license requirements in your area.

Local Licenses

Local governments love creating different types of business licenses for small businesses, and they can be ruthless if you run an unlicensed business. I knew a small business owner whose small business operates out of their home. They were sentenced to 100 hours of community service per month because they didn't have the industry-specific licenses to cut hair. That’s 25 hours a week, plus they have to work.  If you live in a big city, you'll probably have a few local government business license requirements. For instance, in Las Vegas, you'll need a business license for Las Vegas, North Las Vegas, Henderson, and Unincorporated Clark County if you want to be able to conduct business in each of those locations,  You might need a fictitious business name. Good news, no income tax! Make sure you talk to the local SBA before you get a local license because you might find out that you need multiple licenses. The Small Business Administration will be able to help you navigate what can be a crazy labyrinth of local licenses.

Is a business license the same as an LLC?

No, a business license gives you permission to perform a business activity, while a Limited Liability Company (LLC) is a business structure that is intended to prevent business activity from impacting your tangible personal property (and your business from your personal debts). To learn more about limited liability companies and other types of business structures, check out our blog on how to choose a business structure. You'll need to choose one, register it, and get an EIN before you get a business license.

What types of business licenses are there?

Besides the federal licenses that we already discussed the types of business licenses normally fall into the following categories:
  • Operating license
  • Professional licensing
  • Seller's permit
  • Fictitious name (DBA)
  • Miscellaneous licensing and permits
Keep reading to find out more.

Operating license

Operating licenses may be required at both the state and local levels. The government agencies that approve these are just giving you permission to run a business.

Professional licensing

If you are a doctor, engineer, lawyer, or similar, you may be required to have a special license called an occupational license. Check your local requirements to establish whether there are specific licenses required for your field by local governments.

Seller’s permit

A seller's permit is a state or local licensing requirement for sales tax purposes. This is what connects your general business license to the sales tax office. Some states only require a seller's permit when you are selling physical goods, while some states require a business to have a seller's permit to pay sales tax paid on services too. A business with a seller's permit will need to pay sales taxes routinely, either monthly, quarterly, or annually depending on the state.

Fictitious name (DBA)

Three wooden cubes with letters on a desk If you are running a business as a sole proprietor or partnership, you will probably need a fictitious name (or DBA, which means Doing Business As). It's just tying the fictitious name to the small business or person. You may also need it if you have a company that uses multiple names.

Miscellaneous licensing and permits

There are a ton of other licenses or permits a company might need. For instance, many businesses might need zoning permits, building permits, or disrupting traffic permits. Make sure you check with the relevant agency in your location before you do anything that could possibly be covered under state regulations or at the local level. A government agency isn't likely to look kindly on the statement "I didn't know that required licenses."

How much does a business license cost?

Filing fee costs for a business license will depend on the type of application, the amount of work to process the business license, and how much money the local government wants to make. In general, business license rates will vary from free to $550 per business license needed. In addition, the business license will need to be renewed on an annual basis. There may also be compliance requirements that can increase the costs of licenses and permits for small businesses. For instance, occupational licenses can come with thousands of dollars worth of licensing requirements that have to be met before you will be eligible to conduct business activities.

How long does it take to get a business license?

The actual process of getting a business license is fairly quick, often taking less than a day, but it may take up to a week for them to review your application. That doesn't include all the other steps that may come before getting a small business license. For instance, if you want a Principal Engineers (PE) license, which gives you permission to sign construction documents, you'll have to go through an engineering school, pass the Engineer-in-Training test, work under a PE for a certain number of years, then pass the PE test before you can run your own engineering firm.

How to Get a Business License Online in 3 Steps

This guide is assuming you have been following our HUB content to set up your business. If you haven't, you'll need to create your business structure and get an employer identification number before proceeding. Both of those are covered in our guide on how to register a business, where we walk you through the steps for Washington state business license requirements. After you have done that, there are three easy steps to answer the question "how do I get a business license?"
  1. Establish what business license you need and how you get a business license.
  2. Find a location in your area and apply for a business license.
  3. Run the business and follow the business licensing requirements for reporting.

Step 1. Establish what business license you need

The first step in the process is establish which business license you need. We're going to give an example for a California business license on the California Department of Tax and Fee Administration website. Scroll down until you see a long list of links, the screenshot below shows what you are looking for. The link will say “Register a New Business Activity.” Click it and it will ask a list of questions. Website to register new business activity Based on the list of questions, there are two activities most businesses do:
  1. Selling items or goods in California (Seller’s Permit)
  2. Purchasing items from out of state for use in California without paying tax
Those are the ones you'll need for selling almost any type of product unless you purchase everything locally. Make sure there aren't others that apply to you though. Checklist for business license application Then you'll go to the next page, which will ask if you are selling alcohol, tobacco products, tires, or electronics larger than cell phones. Answer the questions and go to the next step. The next page asks about fuel, wood, cell phones, and batteries with acid in them. Answer that and continue. On the next page, it asks what business type you have for your California business license. I'm selecting  LLC, but there are plenty of options. The next page asks about the jurisdiction, federal employer ID number, SEIN, state of jurisdiction, and the identification number for the LLC. I just made them all up, but you should use your real information. The California Department of Tax and Fee Administration website On the next page, it asks if you have an account with the CDTFA. Once you answer that, it tells you what licenses you need. In this example, it told me I need a seller’s permit, which is the same thing as a sales tax permit or sales tax license. Website to apply for a business license At this point, I am done with establishing which California business license I need, and I am moving to the next step of getting a business license online.  While I use the California business license as an example, the Washington state business license had a similar setup, as do other states. Just search "my state's business licensing wizard” and it should come right up. Next, we'll show you how to apply for your business license.

Step 2. Apply for your business license

The next step in the wizard is the beginning of applying for a business license. The system offers a temporary sales tax license, I accept, and the system asks what date I'd like the temporary sales tax permit to start. After you input the date it goes to the following page: Website asking for applicant's personal informationPut in a valid address and click verify. Then it will ask you to verify the information about the LLC start date and contact information. Website asking for a business start date The next page tells you to choose whether the responsible party is a manager, member, or manager/member. Then the next page asks for the information about the person responsible. Put in your information. Website for selecting member or manager position Then you'll need to put in your personal information including SSN and driver's license. After that, you'll need to input your contact information. Member's primary and secondary identification numbers The next screen asks you to add your personal address and verify it with the system. Then the system asks if you have other LLC members. Input the information. Then it will ask for proof of ID, which you should add. On the next page, it asks for your bookkeeper and business activities contact information. Next, the system asks about sales including:
  • Your merchant account
  • Your website
  • 3rd party websites
You only have to answer the ones that apply. Website credit card information section The following screen will ask about your NAICS codes. Use the keyword search to find the appropriate ones. Clothing is 448140. Website showing activity description for business license applicants Because I selected a temporary permit it asks for the event information, the company hosting it, and estimated sales. If you choose a permanent one, similar, but different questions will be asked. It continues to ask for detailed information about everything being sold. Answer the questions honestly and eventually, you will get to where you can pay for the business license fees. Pay and you have your business licenses. For those who haven't started a business before, California's regulations are excessive. In most states, it takes about 30 minutes. I went through an hour plus of questions just for one part of the business licensing process. [su_note note_color="#dbeafc"]

A cautionary note about some states licenses and permits

Some states do not have computer systems that make it easy for small businesses to get general business licenses, local business licenses, seller's permits, and any other licenses and permits in one place. They may send you on a wild goose chase to get specific licenses and permits. If your state is one of the states that are not as business-friendly when it comes to applying for licenses and permits, I would strongly suggest talking to our preferred business starting partner Better Legal and asking them to assist with navigating the maze of local licenses and permits. [/su_note]

Step 3. Run the business and maintain the business license

Once you have received your government-issued business license, you are legal to run your business. Just make sure that you comply with any requirements related to the business license. Some of the most common requirements include:
  1. Quarterly or annual payments to the government agency responsible for sales tax collection
  2. Income tax reports for paying state taxes
  3. Renewing a business license because a  business license or permit will commonly have an expiration date
Failure to follow the license or permit business requirements can result in loss of license or permit, fees to the business, or criminal charges in some scenarios. Keep them up to date if you sell goods, especially alcoholic beverages. Losing a license or permit is not fun to deal with for anyone. If at some point you decide to discontinue business, there are processes for legally closing a business. If you do not follow them, some states will conclude you are operating without a business license or permit and pursue collections.


Now you know how to obtain a business license, how much it might cost, and what the process of obtaining it will look like. We hope this guide has given you confidence that the process of getting business licenses and permits from the state, local, and federal agencies can be achieved in a matter of hours. Let us know if this guide helped you establish "where do I get a business license?" What business did you start after reading this guide? Link to it in the comments so we can keep an eye out for promising businesses to feature in our blogs, videos, and podcasts.
Are you a fanatic about footwear? Do you want to know how to start your own shoe line and make over $60k a month? Afshan Abbas, founder of Fuchsia Shoes, did it! Before Afshan started her business, she quit her job as a software engineer at Microsoft to follow her passion for artisan arts and crafts (including shoes). Over the past 4 years, she's worked to grow her business from $100k in revenue to being on track to make $1 million this year. In this article, we'll tell you how to start a shoe line step-by-step. Follow our guide and Afshan's advice to realize your passion and build your own shoe empire.

1. Get Fashion Design Training and Experience

If you're thinking of starting a shoe line, you probably already have an interest or some experience in fashion design. However, shoe design isn't a business to take lightly. It's necessary to know what you're doing (or at least partner with someone who does!). The best way to get training in the retail shoe industry is to attend a school that features a program in fashion design or retail. Even better, you can find schools devoted to fashion design with a department that focuses on shoe design and development. Here are a few to consider: You also should consider classes or a certification course in business and/or entrepreneurship. This will help you tremendously with the non-design aspects of your shoe line.

Work in the Retail Industry

Though helpful, degrees and certifications are not a requirement to start your shoe line. They're also not an indicator of your chances of success. However, it's best to have experience in the retail industry. Work in areas where you can gain an understanding of fashion buying and the things that drive consumers to purchase particular products (e.g. Why do people buy this shoe brand over another brand?). This experience can also help you network with others who may become key allies in your quest to start your own shoe empire.

2. How Do I Start My Own Shoe Line? Start Researching!

We spoke with Afshan to get her insights and tips on how to start a shoe company and create a profitable e-commerce business. You can watch part 1 and part 2 of our interview with Afshan to hear her story.

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Afshan explained that she did quite a lot of research before launching her shoe line. [su_quote]I studied the artisan market. It turns out it is a $32 billion industry.[/su_quote] Analysts project the global footwear market to reach a value of over $500 billion by 2027. And if you want a slice of that pie, you must narrow down your market and make key choices that will guide the course of your business. The easiest (and fastest) way to open a shoe store is to buy one that’s already up and running. You can check business listings to see what’s available in your area and how much you should expect to spend.

Questions to Consider When Researching

Woman researching on the internet for shoe business We'll help you answer some of these in the next sections, but here are some questions to research and consider before you proceed:
  • What is the market analysis of the entire shoe industry?
  • Are you making active, non-active, or both types of footwear?
  • What is your niche in the shoe business? (See Step 3)
  • Do you want to be gender-specific?
  • Who is your competition?
  • Are you designing your line or do you need to find a designer?
  • What are the costs of your supplies and where will you get them?
  • Do you intend to mass-produce your line?

3. Determine Your Niche and Sales Platform

[su_quote]When you're starting a shoe company, figure out what your niche in that shoe business would be because it's a very crowded market. And if you are going to do something that other people are doing, it will be a really hard sell.[/su_quote] To solidify Afshan's statement, here is a list of the 20 "best" running shoe brands. You can find a similar list for most styles of shoes. To gain a foothold (get it?) in the market, you must determine how your shoe line will stand out above the competition. For Fushsia Shoes, Afshan and her team ran with (I can't stop!) a luxury ballet shoe niche. Some other niche examples to research for inspiration include:
  • Keen - Known for their Uneek shoe made from recycled plastic and shoes that accommodate work and outdoor activities (steel toe, waterproof, slip-resistant).
  • Nobull - Marketed to the CrossFit crowd. Nobull makes stripped-down training shoes for athletes.
  • Simon Miller Shoes - Luxury thick-soled shoes and boots along with designer platform and heel shoes. They also have a vegan leather collection.
  • By Far - Designer shoes that are a throwback to the '80s '90s and early 2000s.
Here are some questions you can ask yourself when trying to determine your niche:
  • Can my shoe line solve a problem?
  • Will it market to a specific audience?
  • Will my design offer a distinct improvement over other brands?
  • Is there something that makes my line special?
  • Is there a section of the market that is underserved?

Ecommerce is the Way

We won't tell you how to run your business. But if you haven't noticed, brick-and-mortar retail spaces are being slaughtered by ecommerce (pandemic aside). Unless you own an existing space or have access to free rent, determining the sales platform of your shoe line is an easy decision. Here's what Afshan had to say on the subject: [su_quote]We're trying to grow this shoe company by massive numbers, and getting caught up in brick-and-mortar will halt that. With ecommerce, the sky is the limit.[/su_quote] If you're not experienced with ecommerce or need to polish your skills, edX, Udemy, and Coursera offer excellent courses on the subject.

4. Write a Business Plan

Man showing a business plan Every company needs a business plan. It's an essential document that summarizes the research and decisions you made about the course of your business. It acts as a guide that lays out your ideas and serves as a quintessential document for loan applications or investor recruitment.

What's in a Business Plan?

  • Market Analysis
  • Mission Statement
  • Startup and Operating Costs
  • Marketing Plan (Target Market)
  • Supply and Manufacturing Chain
  • Sales Funnels


How Much Money Do You Need to Start a Shoe Line?

In order to complete your business plan, you must determine the startup and operating costs for your business. Doing so requires you to assess and decide the scale of your operation. Afshan's business started as a global venture with domestic and international customers. Her operation, though small when compared to a brand like Nike, was actually large in scale for a startup shoe line. We asked her about Fuchsia's startup costs, and she said: [su_quote]When we started, we were 4 partners. And between the 4 of us, we invested $50,000.[/su_quote] To put things into perspective, here are the average startup costs for a small, medium, and large-scale shoe line.
  • Small - $30,000
  • Medium - $110,000
  • Large - $200,000 and up
Remember, you can always start small and scale up as you increase your revenue and streamline your operation.

5. Create Your Brand

Once you determine your market and niche, it's time to create your brand. Your brand differs from your product because it is the means by which people identify your product. For example, when you see a "Swoosh" on a pair of shoes, you know they were made by Nike.

What Makes Up a Brand?

Choosing a brand name for shoe line business There are many elements to consider when creating your brand, but here's a short list:
  • Logo
  • Colors
  • Font and Typography
  • Web Design
  • Story

Branding Resources

Remember that your brand should be distinct, memorable, scalable, and easy to apply. It's not a simple task, but neither is designing and manufacturing a shoe, as you'll see in the next steps. To help you, here are 101 brand-building tools and a great branding resource from the experts at HubSpot.

6. Choose a Business Name

Business names are more important in some industries. The name of your shoe line is the direct connection to your brand. When choosing a name, consider what you want people to think when they hear it, and think about the following tips. If you need help to get started, try an A.I.-powered naming service like Namelix or BNG to point you in the right direction.

Avoid a Name That is Hard to Spell

Since you'll likely engage in an ecommerce business, choose a name that's easy to spell and find on a web search. Don't risk losing potential customers because they can't remember how to spell it correctly.

Don't Pick a Name that Limits Your Growth

Think big when choosing! You don't want to limit your growth just because your business name is too narrow. For example, what if "Nike" had named themselves "Nike Shoe Retailers of Oregon?" It would have limited their potential to grow into an international brand that also markets other apparel.

Secure the .com Domain

Before picking your name, do a thorough internet search and check the availability of the domain name and related spellings. If someone else has already established the name, it may be wise to reconsider. You can check the domain here and register it with Google, GoDaddy, or Namecheap. Screenshot of namecheap website

Test it Out

Afshan and her team chose Fuchsia Shoes, and the title of her webpage is "Fuchsia Shoes: Luxury Ballet Flats." This works wonderfully with her brand considering people recognize fuchsia as a beautiful color and associate it with a flower that is equal in that respect. Once you choose your name, talk to others about it to see if it represents your ideal branding. If you need some help, you can read this article with 12 tips on how to name your business, and be sure to register your name at the federal and state levels.

7. Register Legal Entity

Once you've chosen a name, it's time to register your business for taxes and establish a legal structure. Before choosing a business structure, do your research and work with an accountant or business attorney to maximize your legal and tax benefits.

Licenses and Permits

Approval of business license and permit application Aside from your legal structure, you must also determine whether your business requires specific licenses or permits to operate. No worries! The SBA has a tool you can use to check.

Legal Structures

There isn't a standard legal structure to start a shoe line. You have five base options to review with your accountant or attorney: Sole Proprietorship, Partnership, Corporation, S Corporation, or Limited Liability Corporation. The IRS has a great resource to help you better understand these structures.

Limited Liability Corporation (LLC)

Though there's no standard for a shoe business, you'll most likely register your business as an LLC. This will allow you to protect and separate your personal assets from your business. Also, you can pass on profits and losses from your business as personal income without corporate taxes. However, we cannot stress enough to find a qualified attorney or accountant before choosing your legal structure.

8. Funding Your Shoe Line

Funding for shoe line business Think of funding as a two-step process. First, there is funding to build your team and create initial designs, sketches, and prototypes. Then, you'll require more funding for manufacturing and larger-scale production and distribution.

How Do I Raise the Money?

As we explained earlier, there are three scale tiers of startup costs to start your own shoe line (small, medium, and large). Your funds to launch can come from a variety of sources:
  • Personal funds
  • Personal loan from family or friends
  • Business investors (Afshan's path to launch)
The SBA also has loan programs and other funding programs to help small businesses launch. Another option, if you have good credit, is to use a credit card with an interest-free period to help launch things. Ideally, you'll make enough money to pay off the card before the interest kicks in. You can also try crowdfunding, a home equity loan, or a rollover for business funding from your retirement plan (ROBS). However you obtain your funding, be sure to understand the risks before taking on any debt. If you want to educate yourself further, the SBA has a great course on business financing.
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9. Build Your Team: Sketches & Shoe Designs

If you haven't already, the next step is to bring your ideas into reality by sketching and designing your shoe line. You may think, "How can I create my own shoe line if I'm not talented at shoe design?" Don't worry! It's not a deal-breaker—you just need to build a team that can help. When Afshan started her business, she was working for Microsoft as a software engineer. [su_quote]What inspired me to start a shoe business was... I was traveling across different parts of the world when I was with Microsoft, and I would come across these beautiful, local artisan arts and crafts that I would find and bring back to Seattle.[/su_quote] She took her affinity for local artisan arts and crafts and worked with them directly to create her shoe line. You can also hire local artisans to sketch and design your shoes. NOVICA and the Unicef Marketplace are good spots to find artisan designers. Look at their products on those sites and reach out to them directly. However, if you're short on local talent, there are other options.

Freelance Designers and Software Shoe Designs

There are several freelancing sites on the web with a pool of shoe designers who can help you turn your ideas into reality. Upwork and Fiverr are two trustworthy sites where you can explain your ideas and negotiate rights and pricing before hire. Screen shot of upwork website If you want to design your own shoes, there are software programs to assist. Shoemaster and Romans CAD are two design options that allow you to create 2D or 3D models you can use for prototyping.

10. Create Prototypes and Analyze Materials

[su_quote]In the beginning, [our investment] was mostly spent on research [and] prototyping.[/su_quote] As Afshan explained, the prototype stage is key to developing your shoe line. You must review your designs and take into account all of the materials that go into creating the shoe. They must be financially viable for manufacturing, and you may need to alter your design for the shoe to be wearable.

The Mockup Shoe

The first version of the prototype may be a non-wearable "mockup" shoe made with low-quality materials. Create this shoe to get a full visual of the patterns and designs. It helps determine if the shoe is feasible for manufacture.

The Final Sample

Your final sample is a base production shoe and is the launch point for any shoe line. This is the shoe to bring to manufacturers for evaluation and into pitch meetings for potential investors. You'll also use your prototypes as the base for your marketing campaigns.

11. Patents and Trademarks

Business trademark application approval In the shoe line business, it's important to protect your designs and brand by filing for patents and copyrights with the United States Patent and Trademark Office. This way, if someone steals your designs or logos and tries to profit from them, you're legally entitled to payment or royalties. For filing, you can find an experienced patent and trademark attorney, or the U.S. PTO has all of the information you need for patent and trademark registration on their site. They also have a search function so you can see if you're not infringing on someone else's design before you begin.

Keep Track of Everything

An important note before filing or working with an attorney: During your shoe line development, keep a record of your designs and ideas. You can use a platform like Evernote (it syncs with multiple devices) or XMind (for professional prototyping) to keep things organized and well-documented. It's important to keep your notes as a record of a claim on a patent. When you develop your prototype, photograph it extensively and store the files securely.

12. Manufacturing: How Do You Get a Shoe Made?

Woman making shoes at a shoe factory With your designs, prototypes, patents, and trademarks in place, it's time to secure the manufacturing arm of your shoe line. In our connected world, there are a lot of options. But first, here are some questions to answer before you go to production:

What is the Location of the Manufacturer?

Where you manufacture is a key part of your brand identity. Ever notice how some companies stamp "Made in the USA" in large print on the side of their box? Be mindful of your choice if you intend to integrate your manufacturing process into your brand. Also, if you intend to import your shoes from another country, you could face import taxes based on the country of origin. However, sometimes it's cheaper to import the item and pay the fee than to have it manufactured in the U.S. Either way, it's a calculation you must consider when choosing a manufacturer.

Does the Manufacturer Have Minimum Order Requirements?

Most manufacturers require a minimum quantity with each order, and it can cut deeply into your budget if you're not prepared to make a quick turn on revenue. Review the requirements from any manufacturer before signing an agreement.

Can Your Manufacturer Handle Growth?

[su_quote]For the last four years, I have been working on building an infrastructure on the supply chain side. We literally started from 200 pairs a month, [and] we are at a point where we can do 1,000 pairs a month.[/su_quote] Like Afshan, you'll want to start small and should research standard shoe sizes customers typically order. Ideally, your business will grow, so you want to be sure that your manufacturing arm can handle growth. This is always a work-in-process, but it isn't fun or profitable to pause due to supply issues.

What's the Price Point of My Shoe Line?

Pricing is deeply rooted in the amount of funding you have and your brand. Lower-end brands sell shoes for as low as $20 – $30 per pair because brands work to keep their materials and manufacturing price point low. However, luxury brands sell at prices starting at $250 and can increase to over $1,000 based on perceived value. Before choosing a manufacturer, you must review your branding and price point. Then you can match up with a manufacturer who can deliver in your range.

Tech Pack Submission and Manufacturing Resources

With those questions answered, you must create and submit a tech pack. It's a package that contains all the designs, specifications, and components necessary to turn your prototype into a finished product. Think of it as a blueprint for your shoe design. There are thousands of manufacturers in the world to develop your shoe line, but here are a few standouts:

13. Packaging and Distribution

Employee packing boxes for delivery A shoebox says a lot about a brand, and it's one of the top marketing opportunities in the shoe business. Top shoe lines deliver shoes in a box that prominently features their label as many people keep and reuse shoeboxes for years. To keep with this industry trend, here is a list of custom shoebox manufacturers:
  • The Premium Boxes
  • The Custom Printed Boxes
  • The Printing Daddy
  • Fantastapack

Walking Your Shoes from Point A to Point B

The last element of the fulfillment process is shipping the product safely from your site to the customer. It's important to work with various shipping agencies (UPS, FedEx, DNS, USPS) to find the lowest prices to ship your goods. Otherwise, it can cut into your profits.

14. Establish a Marketing and Sales Plan

With your supply chain in place, the last step before opening your shoe line is establishing your marketing and sales plan. Your marketing strategy is what your business will thrive on. Base it on the extensive market research put into your business plan. Forbes has an excellent resource on developing a marketing strategy. A sales strategy defines your approach to selling your product. Both plans are essential to revenue generation and should be two of your biggest investments. If you don't have experience, consider hiring a marketing and sales consultant through a freelancing site like Upwork.

Digital Marketing & Social Media

Digital marketing means engaging potential customers on digital platforms through email campaigns, newsletters, digital advertising, search engine optimization (SEO), and social media. The key to digital marketing is that it nets a higher ROI (return on investment) than traditional marketing methods.

Social Media

Use of social media for shoe line business Your social media presence is essential to your brand and is a great way to engage with your customers. It's also the primary method you can use to obtain analytics and figure out better ways to market your product. Interact with your customers via posts and encourage them to post pictures about your shoe line! Afshan used social media to develop marketing relationships with influencers who are also sustainability advocates. Through those relationships, she was able to increase her brand's reach, directly access her target market, and turn her customers into marketers.


If you're starting an ecommerce-based business like Afshan, then your website is your storefront. That means you need to invest heavily in designing and optimizing your site. If you’re not good at web design or don't have experience, there are a lot of resources to help you find a reliable web designer and webmaster to run your site. However, as an ecommerce business, work with a designer and webmaster with experience setting up and maintaining an ecommerce shopping cart. Screen shot of Shopify website

Refine Both Strategies and Watch Your Revenue Grow

Fuchsia's revenue jumped from $150k in 2019, but they're already at $400k in 2020 and on track to do $1 million by the end of the year. We asked Afshan what contributed to the large jump in revenue and she said, [su_quote]I think we got really good at the sales funnels and our marketing and being able to run and scale that marketing with a positive ROI (return on investment).[/su_quote]


With these steps, you now know the essentials and have resources on how to start a shoe line. As we said, analysts expect the shoe industry to grow over the next decade. So get started now to make your presence known and take your place. To send you off, here's one final piece of advice from Afshan on how to be successful in the industry: [su_quote]Coming this far, [it] was having grit. We failed ten times, but the eleventh time it worked. So, it's about repeating the process, trying out different things, and figuring out what works for you.[/su_quote] Do you have any experience in the shoe or fashion industry? Let us know what you think!
Are you considering starting a business and wondering whether you need business insurance? Maybe you've already started it and are not sure how to get insurance for your business. Maybe something occurred that led you to wonder if there is a way to protect against an event in the future. All of these are reasons you might research how to get business insurance. Business insurance is focused on protecting your business from major liabilities that can occur while running a business. There are many different types of insurance that small business owners can get to protect their businesses, but we'll make it easier to identify the insurance you need. We'll discuss:
  • Whether or not you need small business insurance
  • The types of insurance
  • How much business insurance costs
  • Which insurance company is best for small businesses
  • How to apply for business insurance
Get ready to learn everything you need to know about getting small business insurance for your company.

Do I Need Business Insurance?

Most businesses will need some type of insurance because certain activities require insurance. The most common types of insurance a business will need are:
  • Workers' compensation insurance (employees)
  • Unemployment insurance (employees)
  • General liability insurance for the small business (covers property damage and customer injuries)
  • Commercial vehicular insurance for commercial vehicles (required if using a vehicle for business purposes)
These will be required if you have employees, operate your business anywhere besides your home, or drive a motor vehicle. The Hartford offers a state guide to small business insurance that is useful to establish what is required in your state. Even if you don’t need a specific type of business insurance, it can help protect your assets and give you peace of mind. Don’t take legal requirements as the modus operandi. They are the minimum you should have. Do what is best for your situation. There are some special considerations that will need to be considered when choosing business insurance. The primary considerations include:
  • What business activities does the insurance cover?
  • Who does the business insurance protect?
  • What are the policy limits per incident and per occurrence?
  • Are there specific technical, industry, or other requirements to qualify for the insurance?
  • What are the deductibles for the insurance?
  • How much does each policy cost?
The answers to most of these questions will be provided in the following section on the different types of small business insurance. Let's look at them now.

Type of Business Insurance

A man typing on a white iPad When wondering how to get business insurance, there are a variety of small business insurance policies to consider. Besides workers' compensation insurance, unemployment insurance, general liability insurance, and commercial auto insurance there are also:

Commercial Property Insurance

Commercial property insurance, sometimes called business property insurance, is used to protect property owned by the business, including inventory and equipment. Policies may exclude loss from theft, natural disaster, and customer fraud. Nationwide explains how to estimate how much coverage you need, but you can get a $60K policy with a $1,000 deductible for under $1,000 per year.

Professional Liability Insurance

Professional liability insurance, sometimes called errors and omissions insurance, protects professional services like engineers, architects, and accountants. It covers negligence and other service-related errors. If your business has the potential to cause substantial harm to customers, you may want to purchase a policy. Insureon estimates construction policies are the most expensive at $1,705 per year.

Product Liability Insurance

Product liability insurance covers claims involving defects in physical products including manufacturing, design, and marketing. Fundera estimates that you will pay $.25 per year for every $100 in sales, meaning $1 million in revenue would cost $2,500 to insure.

Business interruption insurance

Business interruption insurance is an add-on to property insurance that protects lost revenue when a business is forced to shut down. It typically covers 30 days but may cover up to 360 days and starts at $18 a month. You can learn more about business interruption insurance on Investopedia.

Cybersecurity Insurance

Cybersecurity insurance, which might be called cyber liability insurance, protects against losses from data breaches. AdvisorSmith did a study on cybersecurity insurance and found that most businesses can spend $739 for a $250,000 policy with a $2,500 deductible.

Directors’ and Officers’ Insurance

Directors’ and officers’ insurance, often called D&O policies, protect the directors and officers against personal liability. These policies normally cost between $5K and $10K to cover $1 million of losses, most commonly during bankruptcy lawsuits. These policies typically include three categories:
  • Side A is for when the company is unable or unwilling to pay the costs.
  • Side B is for when the company is willing to cover the directors' or officers' liability.
  • Side C covers the company itself and may be secured by assets.
Learn more about D&O on Investopedia.

Key Person Insurance

Key person insurance is a life insurance policy to cover the loss or death of a key member of a small business. This is used frequently in major corporations to protect against 5-10 years of revenue loss when an important team member leaves. As a small business, this insurance can be used to protect your family business revenue if you die. Learn more on Policy Advisor.

A Business Owner's Policy

A man typing on his computer A business owner's policy (BOP) combines general liability insurance, commercial property insurance, and business interruption insurance at a discount to encourage a small business owner to carry all their coverage with one insurance company. Most will have available add-ons if it doesn't cover all you need or want. Make sure to get one that adjusts to your business needs.

How Much Does Business Insurance Cost?

As you've seen from the types of insurance above, small business insurance can cost anywhere from $2,000 per year to millions per year if you become a major corporation that utilizes all the offerings provided by an insurance company. Make sure you know what you need before contacting an insurance company and remember to ask about exclusions. When I was living in Florida, I met people and business owners who lost millions because their insurance company did not cover damage from hurricanes.  The insurance companies do not offer a policy that is both wind and water. You’ll have to have a separate insurance company for each. Be prepared to have them fight over whether water or wind caused the damage, and who should cover it. Keep reading to learn about the best insurance company for small businesses.

What Insurance Company Is Best for Small Business Owners?

The answer is going to be different for everyone, but there are some common providers that tend to be more business-friendly. Two of the insurances that I have personally interacted with and would recommend to anyone are:
  1. Simply Business
  2. The Hartford
  3. Hiscox
Let's look at each of these to understand why I recommend them.

Simply Business

Simply Business compares rates from different business insurance companies to get you the best rate on the market. We're excited to partner with them to help you get the best rates. Request your quote today.

The Hartford

Years ago, I had an accident where another driver hit me from behind while I was delivering food. The Hartford was the insurance company for the other driver. They really impressed me with their professionalism. Most insurance companies will fight every single claim and drag it out. Not The Hartford! I was able to negotiate a deal with The Hartford that included:
  1. Getting my car fixed
  2. My lost wages due to the company policy at work
  3. $1,000 because their insured motorist was being difficult
Best Part? I was back on the road working in less than two weeks. That is a level of service I have never seen from an insurance company before or after. I would highly recommend getting a quote from them, but when I have in the past, they were much higher than others in my area. I tried getting a quote recently, and they only offer it via phone.

Hiscox Insurance

Hiscox is focused on making it easy for small businesses to get the insurance they need. I asked for a quote on a BOP with cybersecurity insurance for a $1 million a year eCommerce store, and the estimate was under $1,500 per year. It took about 10 minutes.  Cybersecurity insurance covers $250,000 with a $1,000 deductible. That's a reasonable price, which I will be paying since I just started the business. Hiscox insurance website showing computation for annual payment I've used this insurance before with a photography company and it was really easy to add and subtract locations when we were working at different locations. They are one of the best for mom-and-pop shops and have most of the insurance options listed in this article. I highly recommend getting a quote from them first. They are who I will use when I get insurance for my business.

How to Get Small Business Insurance

When wondering how to get commercial insurance, you'll follow a three-step process:
  1. Gather the information you need to provide the insurance company.
  2. Compare quotes from at least three insurance companies.
  3. Buy the insurance that is the best deal for your needs.
Let's look at what information you'll need for insuring a business.

Step 1. Gather information you will need for quotes

You'll need a variety of personal and business information ready when applying for insurance for business. Insurance providers will typically ask for a variety of information in three categories:
  1. Personal information
  2. Business information
  3. Insurance needs
Let's look at each of these so you make sure you have the information ready to get small business insurance.

Personal Information

The insurance company will need the business owners' personal information including their name, address, email, and phone number. They may also need a social security number if they run credit checks to provide quotes, which most of the major insurance companies do.

Business Information

To provide coverage, financial products will need business information like:
  • Business structure
  • Small business name
  • DBA (if applicable)
  • Employer identification number
  • Business address(es) for each location
  • Number of employees by business location
  • Employees income
  • Revenue
  • Products sold
  • Net income
  • Products you sell
  • Equipment you want to be covered
Depending on what type of insurance solutions you want for your small business, you will need to provide some or all these. General liability insurance will typically require just the location and business information, but not the number of employees and revenue. Most of the other types of insurance will require the rest of the information to establish how much it will cost to provide financial protection to the business owner.

What insurance do I need for my business?

A laptop and a cup of coffee on a brown desk For you to receive expert advice from an insurance company, you'll need to be able to let them know what kind of coverage you need. The right coverage will be a balance of the type of insurance policies, coverage limits, deductibles, exclusions you want covered, and monthly or annual payments. Most coverage limits will start with state minimums (or the minimum reasonable amount if not dictated by law) and be tiered based on the specific needs of the business. Higher limits cost more, so you’ll save money by getting the lowest coverage options that exceed your needs. You can add additional coverage as the business grows. You'll need to know how much coverage you need for each of the following:
  • General liability insurance
  • Commercial auto insurance
  • Employment practices liability insurance
  • Professional liability insurance
  • Workers compensation insurance
  • Property damage based on real estate property values, equipment, and inventory values
  • Any other commercial insurance solutions you desire
  • Income if applying to protect against lost income for business owners
A deductible is an amount you have to pay before coverage begins on a claim. Consider a higher deductible when you get small business insurance to save money.  A lower deductible raises the insurance cost for businesses, but you should still select a deductible you can afford. Most insurance for small business owners will include the following deductible options:
  • $0
  • $250
  • $500
  • $1,000
  • $2,500
  • $5,000
  • $10,000
If you are somewhere with catastrophic events such as hurricanes or wildfires, you might want insurance solutions that provide coverage for those natural disasters. Remember to ask about any specific exclusions to the policy and how you can get insurance against them. Businesses may need both wind and flood damage coverage, preferably from the same company, to cover hurricanes and tornadoes. You may find this difficult as my family has not successfully found coverage for both from one company in Florida. The final information you will need as you think about how to get small business insurance is your monthly or annual budget. Inc. estimates you should expect to spend 20-30% of revenue across all types of business insurance, including health care and commercial auto insurance. The next portion of the answer to "how do I get insurance for my business?" is to contact providers.

Step 2. Compare quotes from at least 3 different providers

When wondering how to ensure your business, make sure to compare the business coverage and quotes from at least three commercial insurance providers.  This helps you find the best pricing and range of services. Insurance companies offer a variety of business insurance products for small business owners. I’d ask the company that provides your home and car insurance about their business offerings to save time and potentially money.  Doing the research is a large portion of the time in any business decision. We've provided a list from the Insurance Information Institute's website of some of the largest small business insurance companies:
  1. Chubb, LTD is the world's largest provider of insurance based on premiums collected last year. Chubb offers more types of insurance than I knew existed and they build each policy for general and professional liability coverage, workers compensation, and other types of insurance you need.
  2. Travelers Companies, Inc. is the second-largest issuer of business insurance by premiums.
  3. Liberty Mutual is the third-largest issuer of business insurance by premiums collected. Check Liberty Mutual for your insurance needs.
  4. Zurich Insurance Group offers property, casualty, and cyber security insurance, as well as risk management tools and insights to help protect your business. Learn more on ZIG's website.
  5. AIG deals with coverage options for everything from bodily injury to space exploration. If you need an insurance policy for your business, I'm sure you can find one at
  6. Berkshire Hathaway and its children companies tend to provide high-quality offerings if they insure your industry. Find out if Berkshire Hathaway has the types of business insurance you need.
  7. CNA Financial Group offers business owners policies that are tailor-made coverage for multiple types of businesses. CNA coverage options even include ransom and kidnapping insurance for the rockstar CEOs. Learn more about CNA.
  8. Hartford International can be found in my discussion in The Hartford section above.
  9. Nationwide was shared with a link in the section about commercial property insurance above.
  10. Tokio Marine Group is mostly specialty coverage for things like bodily injuries. They have several subsidiaries that operate in the U.S. I'd pass on them given the limitations of their coverage, but here is TMG's website.
Surprisingly Progressive Commercial, State Farm, and Geico Business aren't on that list so here are their links: Keep reading for the final step in the answer to "how do I get business insurance?"

Step 3. Buy the insurance to protect your business

A piece of white paper pinned on a corkboard Once you've gotten at least three quotes, review them to establish which coverage offers the best value for your business. You may have to go with multiple companies to get a full range of insurance that helps protect against general liability, commercial property damage, professional liabilities, and bodily injuries. Once you've decided which policies are best for your business, pay for them. Most of the time, you can either pay monthly or annually. If you pay annually, the insurance company might offer you a discount. If you pay monthly, schedule monthly payments so that you don't have to worry about remembering the payment date.

Wrapping it up

That concludes our guide on how to get small business insurance coverage. If you have any questions, leave them in the comments below. We enjoy hearing about business owners' experiences with small business insurance companies. Do you have a story about an insurance company other business owners need to know? Share it with us below.


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