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How Profitable is Furniture Business

    To determine how profitable a furniture business is, my approach was to analyze a data set of companies of various sizes with available data. The database yielded 51 companies for me to analyze. 

    Here are some key observations from the analysis. 

    How Profitable is a Furniture Business? 

    For the 51 companies in the data set, the average gross margin is 34%, the average EBITDA margin is 4%, and the average net profit margin is 1%. 

    When we look under the hood to see how the margins stack up for different sizes of the business, we can deduce some interesting takeaways. 

    Gross Margin Analysis:

    How Profitable is a Furniture Business

    • The average gross margin of furniture businesses is the lowest for the smallest companies. In this data, companies with revenue below $20 million have an average gross margin of 27%. 
    • The average gross margin for furniture businesses with revenue between $20 and $50 million increases to 34%. 
    • The average gross margin for furniture businesses with revenue higher than $50 million increases further to 39%. 

    Looking at these findings, we can infer that smaller businesses may have lower gross margin, because more hands are required. 

    For example, there may be more bespoke orders that small businesses take on, which can result in higher staff hours that go into each order and higher cost of the materials, thereby increasing the cost of goods sold. 

    EBITDA Margin Analysis:

    How Profitable is a Furniture Business

    • For small furniture businesses with revenue below $20 million, the average EBITDA margin was negative. This was an interesting observation, which suggests that there is a certain size that a furniture business needs to reach in order to cover the fixed cost.
    • Once the furniture businesses reached above $20 million in revenue, the EBITDA margin became positive. 
    • There isn’t enough data to be sure that the EBITDA margin typically increases for businesses with revenue between $50 million and $200 million before decreasing again, so this trend is inconclusive. 
    • Overall, the average EBITDA margin is 4%, so if the revenue of a furniture business is $70 million, the typical furniture business may have an EBITDA margin of $2.8 million. 

    Net Profit Margin Analysis:

    How Profitable is Furniture Business

    • Because the EBITDA margin is lower for the smaller size furniture businesses, the net profit margin is similarly lowest and negative for furniture businesses with revenue below $20 million. 
    • The interesting takeaway is that the average furniture business has a net profit margin of 1%, meaning regardless of size of business, the average furniture business just barely breaks even. 

    How to Value a Furniture Business

    Valuation multiples are used to value a business in most industries. 

    Revenue multiples are useful if a business does not have profitability yet. 

    EBITDA multiples are useful to value companies in an industry that are more stable and for an industry where companies’ operating efficiency is a comparable tool for profitability. 

    In other words, a business might have fast-growing and reliable revenue year-over-year, but their operating cost might be through the roof, in which case, the valuation of this business will be a lot lower using EBITDA multiples rather than revenue multiples. 

    On that note, the following are average revenue and EBITDA multiples for furniture companies which can be used as a benchmark to value a furniture business. 

    From my analysis of 14 public furniture companies with available data, the average revenue multiple is 0.5x. 

    The average EBITDA multiple of this data set is 6.4x.

    How Profitable is Furniture Business

    That means if you have a household furniture business that makes $5 million per year, the value of the business using the revenue multiple of 0.5x is $2.5 million. 

    If the furniture business’s EBITDA margin is 8% so that the business is making $400,000 in EBITDA per year, using the EBITDA multiple of 6.4x, the value of the business is $400,000 x 6.4 = ~$2.6 million. 

    To read more on how to value a business based on profit, read my post here.

    To read more on how to value a business based on revenue, read my post here

    Download Data Set

    To download the ~50 companies data set in this analysis of how profitable a furniture business is, enter your email address below to sign-up for the mailing list and the data set will be sent to your email directly. 

    (Note that I have never sent an email to the mailing list, but I may in the future, who knows. But the reason for mailing it directly is because if you can download it with a click of a button, the internet bots go nuts.)

    Thanks for reading as always and leave a comment if you found it useful!

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