Electricity is something that nearly everyone in the United States uses every day of their lives, one way or another. Electrical services are so important that the electrician industry is valued at over $200 billion. Electricians are highly skilled and are able to do work that is dangerous for the layperson to attempt, which is why they are in high demand. You can start an electrical business and tap into that demand and build a lucrative business.
Starting an electrical business will have challenges and require hard work and knowledge to be successful. This step-by-step guide has all the information and insight that you need to be on your way to start your entrepreneurial journey.
Step 1: Decide if the Business Is Right for You
Pros and cons
Starting an electrical business has pros and cons that you should consider before deciding if the business is right for you.
- High Demand – Electrical services are in demand by consumers and businesses
- Valuable Service – Provide essential services and safety to customers
- Good Profit – Electricians command high rates
- Education – You need to complete education to become licensed
- Odd Hours – Customers may require emergency service at odd hours
Electrical industry trends
Rising new home construction has contributed to the growth of the US electrician industry.
Industry size and growth
Trends and challenges
Some trends in the industry include:
- Demand for energy efficiency is rising, which is increasing the demand for electrical upgrades. New technologies, including energy storage technologies, are emerging to increase efficiency. Electricians will need to stay up to date on these technologies.
- Sustainably made materials are also in demand, including recycled parts.
Some challenges also exist in the electrical industry which include:
- There is a shortage of licensed electricians which will present a challenge for electrical companies looking to hire.
- Liability issues exist if mistakes are made that jeopardize safety. Electricians must work with extreme caution.
What kind of people work as electricians?
How much does it cost to start an electrical business?
Startup costs for an electrical business range from just over $3,000 to nearly $25,000. The low end assumes that you are already licensed and are going to run your business as a solopreneur from home. The high end includes the cost of training and setting up an office and shop.
You’ll need a handful of items to successfully launch your electrical business. Here’s a list to get you started:
- Screwdrivers and nut drivers
- Wire strippers
- Fishing tools
- Measuring devices
- Labeling machines
- Power drills and drivers, hammer/drills
- Power saws
|Start-up Costs||Ballpark Range||Average
|Setting up a business name and corportation||$150 - $200||$175
|Licenses and permits||$400 - $600||$500
|Insurance||$500 - $1,000||$750
|Business cards and brochures||$200 - $300||$250
|Website setup||$1,000 - $3,000||$2,000
|Education to become licensed||$0 - $10,000||$5,000
|Shop and office space security deposit||$0 - $5,000||$2,500
|Tools and equipment||$1,000 - $3,000||$2,000
|Total||$3,250 - $23,100||$13,175
How much can you earn from an electrical business?
The average electrical contractor usually charges $75 to $100 per hour. Working from home, your profit margin should be about 80%. In your first year or two, you could work from home 25 hours a week at $100 per hour, bringing in $130,000 in annual revenue. This would mean over $100,000 in profit, assuming that 80% margin.
As your brand gains recognition, sales could climb to jobs that take 200 hours per week. At this stage, you would have a shop and office and staff, including other electricians, reducing your profit margin to around 25%. With expected annual revenue of over $1,000,000, you would make over a quarter-million dollars.
What barriers to entry are there?
There are a few barriers to entry for an electrical business. Your biggest challenges will be:
- You need to be a licensed electrician or go through the process to become licensed
- Finding other qualified electricians to work for you may be challenging
Related Business Ideas
If you’re still not sure whether this business idea is the right choice for you, here are some related business opportunities to help you on your path to entrepreneurial success.
Step 2: Hone Your Idea
Now that you know what’s involved in starting an electrical business, it’s a good idea to hone your concept in preparation to enter a competitive market.
Why? Identify an opportunity
Research electrical companies in your area to examine their services, price points, and customer reviews. You’re looking for a market gap to fill. For instance, maybe the local market is missing an eco-friendly electrical contractor.
You might consider targeting a niche market by specializing in a certain aspect of your industry such as a commercial electrical company.
This could jumpstart your word-of-mouth marketing and attract clients right away.
What? Determine your products or services
Essentially, in an electrical business, you need to determine how extensive your services will be. Will you just do just basic residential electric repairs or will you do complete upgrades? Will you rewire old homes that have knob and tube wiring? You can even do the electrical installation of new constructions or even large industrial projects.
How much should you charge for electrical services?
Electrical services generally command between $75 to $100 per hour. You can also charge your customers for parts and include a markup. Some contractors even add an extra charge to cover some of their overhead, although if you start as a solopreneur from home, you won’t have much overhead. When you’re on your own, you should target a profit margin of about 80% and when you have a shop and staff your target should be about 25%.
Once you know your costs, you can use this Step By Step profit margin calculator to determine your mark-up and final price point. Remember, the price you use at launch should be subject to change if warranted by the market.
Who? Identify your target market
Your target market will depend on if you decide to focus on residential or commercial electrical work. If you choose residential, your market will be homeowners who are a more established group. You can find them on sites like Facebook and LinkedIn.
Where? Choose your business premises
In the early stages, you may want to run your business from home to keep costs low. But as your business grows, you’ll likely need to hire workers for various roles and need to rent out an office and shop. Find commercial space to rent in your area on sites such as Craigslist, Crexi, and Instant Offices.
When choosing a commercial space, you may want to follow these rules of thumb:
- Central location accessible via public transport
- Ventilated and spacious, with good natural light
- Flexible lease that can be extended as your business grows
- Ready-to-use space with no major renovations or repairs needed
Step 3: Brainstorm a Business Name
Your business name is your business identity, so choose one that encapsulates your objectives, services, and mission in just a few words. You probably want a name that’s short and easy to remember, since much of your business, and your initial business in particular, will come from word-of-mouth referrals.
Here are some ideas for brainstorming your business name:
- Short, unique, and catchy names tend to stand out
- Names that are easy to say and spell tend to do better
- Name should be relevant to your product or service offerings
- Ask around — family, friends, colleagues, social media — for suggestions
- Including keywords, such as “electric” or “electrical”, boosts SEO
- Name should allow for expansion, for ex: “Jim’s Electric” over “Jim’s Wiring”
- Avoid location-based names that might hinder future expansion
- Use online tools like the Step by Step Business Name Generator. Just type in a few keywords and hit “generate” and you’ll have dozens of suggestions at your fingertips.
Once you’ve got a list of potential names, visit the website of the US Patent and Trademark Office to make sure they are available for registration and check the availability of related domain names using our Domain Name Search tool. Using “.com” or “.org” sharply increases credibility, so it’s best to focus on these.
Finally, make your choice among the names that pass this screening and go ahead with domain registration and social media account creation. Your business name is one of the key differentiators that sets your business apart. Once you pick your company name, and start with the branding, it is hard to change the business name. Therefore, it’s important to carefully consider your choice before you start a business entity.
Step 4: Create a Business Plan
Every business needs a plan. This will function as a guidebook to take your startup through the launch process and maintain focus on your key goals. A business plan also enables potential partners and investors to better understand your company and its vision:
- Executive Summary: Brief overview of the entire business plan; should be written after the plan is complete.
- Business Overview: Overview of the company, vision, mission, ownership, and corporate goals.
- Product and Services: Describe your offerings in detail.
- Market Analysis: Assess market trends such as variations in demand and prospects for growth, and do a SWOT analysis.
- Competitive Analysis: Analyze main competitors, assessing their strengths and weaknesses, and create a list of the advantages of your services.
- Sales and Marketing: Examine your companies’ unique selling propositions (USPs) and develop sales, marketing, and promotional strategies.
- Management Team: Overview of management team, detailing their roles and professional background, along with a corporate hierarchy.
- Operations Plan: Your company’s operational plan includes procurement, office location, key assets and equipment, and other logistical details.
- Financial Plan: Three years of financial planning, including startup costs, break-even analysis, profit and loss estimates, cash flow, and balance sheet.
- Appendix: Include any additional financial or business-related documents.
If you’ve never created a business plan yourself before, it can be an intimidating task. Consider hiring an experienced business plan writer on Fiverr to create a professional business plan for you.
Step 5: Register Your Business
Registering your business is an absolutely crucial step — it’s the prerequisite to paying taxes, raising capital, opening a bank account, and other guideposts on the road to getting a business up and running.
Plus, registration is exciting because it makes the entire process official. Once it’s complete, you’ll have your own business!
Choose where to register your company
Your business location is important because it can affect taxes, legal requirements, and revenue. Most people will register their business in the state where they live, but if you are planning to expand, you might consider looking elsewhere, as some states could offer real advantages when it comes to electrical businesses.
If you’re willing to move, you could really maximize your business! Keep in mind, it’s relatively easy to transfer your business to another state.
Choose your business structure
Business entities come in several varieties, each with its pros and cons. The legal structure you choose for your electrical business will shape your taxes, personal liability, and business registration requirements, so choose wisely.
Here are the main options:
- Sole Proprietorship – The most common structure for small businesses makes no legal distinction between company and owner. All income goes to the owner, who’s also liable for any debts, losses, or liabilities incurred by the business. The owner pays taxes on business income on his or her personal tax return.
- Partnership – Similar to a sole proprietorship, but for two or more people. Again, owners keep the profits and are liable for losses. The partners pay taxes on their share of business income on their personal tax returns.
- Limited Liability Company (LLC) – Combines the characteristics of corporations with those of sole proprietorships or partnerships. Again, the owners are not personally liable for debts.
- C Corp – Under this structure, the business is a distinct legal entity and the owner or owners are not personally liable for its debts. Owners take profits through shareholder dividends, rather than directly. The corporation pays taxes, and owners pay taxes on their dividends, which is sometimes referred to as double taxation.
- S Corp – An S-Corporation refers to the tax classification of the business but is not a business entity. An S-Corp can be either a corporation or an LLC, which just need to elect to be an S-Corp for tax status. In an S-Corp, income is passed through directly to shareholders, who pay taxes on their share of business income on their personal tax returns.
We recommend that new business owners choose LLC as it offers liability protection and pass-through taxation while being simpler to form than a corporation. You can form an LLC in as little as five minutes using ZenBusiness’s online LLC formation service. They will check that your business name is available before filing, submit your articles of organization, and answer any questions you might have.
Step 6: Register for Taxes
The final step before you’re able to pay taxes is getting an Employer Identification Number, or EIN. You can file for your EIN online or by mail or fax: visit the IRS website to learn more. Keep in mind, if you’ve chosen to be a sole proprietorship you can simply use your social security number as your EIN.
Once you have your EIN, you’ll need to choose your tax year. Financially speaking, your business will operate in a calendar year (January–December) or a fiscal year, a 12-month period that can start in any month. This will determine your tax cycle, while your business structure will determine which taxes you’ll pay.
It is important to consult an accountant or other professional to help you with your taxes to ensure you are completing them correctly.
Step 7: Fund your Business
Securing financing is your next step and there are plenty of ways to raise capital:
- Bank loans: This is the most common method but getting approved requires a rock-solid business plan and strong credit history.
- SBA-guaranteed loans: The Small Business Administration can act as guarantor, helping gain that elusive bank approval via an SBA-guaranteed loan.
- Government grants: A handful of financial assistance programs help fund entrepreneurs. Visit Grants.gov to learn which might work for you.
- Friends and Family: Reach out to friends and family to provide a business loan or investment in your concept. It’s a good idea to have legal advice when doing so because SEC regulations apply.
- Crowdfunding: Websites like Kickstarter and Indiegogo offer an increasingly popular low-risk option, in which donors fund your vision. Entrepreneurial crowdfunding sites like Fundable and WeFunder enable multiple investors to fund your business.
- Personal: Self-fund your business via your savings or the sale of property or other assets.
Personal financing or friends and family financing may be your best bets, or you might be able to get a bank loan for your training.
Step 8: Apply for Licenses/Permits
Starting an electrical business requires obtaining a number of licenses and permits from local, state, and federal governments. You need to be a licensed electrician in your state. Check your state’s website for requirements. An electrician’s license is considered a specialty contractor’s license.
Federal regulations, licenses, and permits associated with starting your business include doing business as, health license and permit from the Occupational Safety and Health Administration (OSHA), trademarks, copyrights, patents, and other intellectual properties, as well as industry-specific licenses and permits.
You may also need state-level licenses and local county or city-based licenses and permits. The license requirements and how to obtain them vary, so check the websites of your state, city, and county governments or contact the appropriate person to learn more. You could also check this SBA guide for your state’s requirements.
This is not a step to be taken lightly, as failing to comply with legal requirements can result in hefty penalties.
If you feel overwhelmed by this step or don’t know how to begin, it might be a good idea to hire a professional to help you check all the legal boxes.
For peace of mind and to save time, we recommend using MyCorporation’s Business License Compliance Package. They will research the exact forms you need for your business and state, and provide them to you to make sure you’re fully compliant.
Step 9: Open a Business Bank Account
Before you start making money, you’ll need a place to keep it, and that requires opening a bank account. Keeping your business finances separate from your personal account makes it easy to file taxes and track your company’s income, so it’s worth doing even if you’re running your electrical business as a sole proprietorship.
Opening a business bank account is quite simple, and similar to opening a personal one. Most major banks offer accounts tailored for businesses — just inquire at your preferred bank to learn about their rates and features.
Banks vary in terms of offerings, so it’s a good idea to examine your options and select the best plan for you. Once you choose your bank, bring in your EIN (or Social Security Number if you decide on a sole proprietorship), articles of incorporation, and other legal documents and open your new account.
Step 10: Get Business Insurance
Business insurance is an area that often gets overlooked yet it can be vital to your success as an entrepreneur. Insurance protects you from unexpected events that can have a devastating impact on your business.
Here are some types of insurance to consider:
- General liability: The most comprehensive type of insurance, acting as a catch-all for many business elements that require coverage. If you get just one kind of insurance, this is it. It even protects against bodily injury and property damage.
- Business Property: Provides coverage for your equipment and supplies.
- Equipment Breakdown Insurance: Covers the cost of replacing or repairing equipment that has broken due to mechanical issues.
- Worker’s compensation: Provides compensation to employees injured on the job.
- Property: Covers your physical space, whether it is a cart, storefront, or office.
- Commercial auto: Protection for your company-owned vehicle.
- Professional liability: Protects against claims from a client who says they suffered a loss due to an error or omission in your work.
- Business owner’s policy (BOP): This is an insurance plan that acts as an all-in-one insurance policy, a combination of any of the above insurance types.
Step 11: Prepare to Launch
As opening day nears, prepare for launch by reviewing and improving some key elements of your business.
Essential software and tools
Being an entrepreneur often means wearing many hats, from marketing to sales to accounting, which can be overwhelming. Fortunately, many websites and digital tools are available to help simplify many business tasks.
You can use industry-specific software, such as ServiceTrade, connecteam, or ServiceTitan, to manage your pricing, bids, scheduling, dispatching, and to monitor your key performance indicators (KPIs).
- Popular web-based accounting programs for smaller businesses include Quickbooks, Freshbooks, and Xero.
- If you’re unfamiliar with basic accounting, you may want to hire a professional, especially as you begin. The consequences for filing incorrect tax documents can be harsh, so accuracy is crucial.
Some of your business will come from the casual online visitors, but still, you should invest in digital marketing! Getting the word out is especially important for new businesses, as it’ll boost customer and brand awareness.
Once your website is up and running, link it to your social media accounts and vice versa. Social media is a great tool for promoting your business because you can create engaging posts that advertise your products:
- Facebook: Great platform for paid advertising, allows you to target specific demographics, like men under age 50 in the Cleveland area.
- Instagram: Same benefits as Facebook but with different target audiences.
- Website: SEO will help your website appear closer to the top in relevant search results, a crucial element for increasing sales. Make sure that you optimize calls to action on your website. Experiment with text, color, size, and position of calls to action such as “Schedule Now”. This can sharply increase purchases.
- Google and Yelp: For businesses that rely on local clientele, getting listed on Yelp and Google My Business can be crucial to generating awareness and customers.
Take advantage of your website, social media presence and real-life activities to increase awareness of your offerings and build your brand. Some suggestions include:
- Flyering – Distribute flyers in your neighborhood and at industry events.
- Post a video – Post a video about your product. Try using humor and maybe it will go viral!
- Email marketing/newsletter – Send regular emails to customers and prospects. Make them personal.
- Start a blog – Start a blog and post regularly. Change up your content and share on multiple sites.
- Seek out referrals – Offer incentives to generate customer referrals to new clients.
- Paid ads on social media – Choose sites that will reach your target market and do targeted ads.
- Pay–per-click marketing – Use Google AdWords to come up faster from searches. Research your keywords first.
- Do a webinar – Share your expertise online with a video seminar.
- Offer a free download – Offer something of value to download from your website to capture emails.
- Case studies – Post case studies about how your product or service helped a customer.
Develop your website
Website development is crucial because your site is your online presence and needs to convince prospective clients of your expertise and professionalism. They are unlikely to find your website, however, unless you follow Search Engine Optimization (SEO) practices. These are steps that help pages rank higher in the results of top search engines like Google.
You can create your own website using services like WordPress, Wix, or Squarespace. This route is very affordable, but figuring out how to build a website can be time-consuming. If you lack tech-savvy, you can hire a web designer or developer to create a custom website for your business.
Focus on USPs
Unique selling propositions, or USPs, are the characteristics of a product or service that sets it apart from the competition. Customers today are inundated with buying options, so you’ll have a real advantage if they are able to quickly grasp how your electrical business meets their needs or wishes. It’s wise to do all you can to ensure your USPs stand out on your website and in your marketing and promotional materials, stimulating buyer desire.
Global pizza chain Domino’s is renowned for its USP: “Hot pizza in 30 minutes or less, guaranteed.” Signature USPs for your electrical business could be:
- Eco-friendly electrical services to increase your energy efficiency
- 24/7 on-call electrical services
- Reliable electrical services for small businesses
You may not like to network or use personal connections for business gain. But your personal and professional networks likely offer considerable untapped business potential. Maybe that Facebook friend you met in college is now running an electrical business, or a LinkedIn contact of yours is connected to dozens of potential clients. Maybe your cousin or neighbor has been working in electric for years and can offer invaluable insight and industry connections.
The possibilities are endless, so it’s a good idea to review your personal and professional networks and reach out to those with possible links to or interest in electrical businesses. You’ll probably generate new customers or find companies with which you could establish a partnership.
Step 12: Build Your Team
If you’re starting out small from a home office, you may not need any employees. But as your business grows, you will likely need workers to fill various roles. Potential positions for an electrical business would include:
- Electricians – provide electrical services
- Dispatcher – take calls and dispatch electricians
- General Manager – staff management, supply ordering, accounting
At some point, you may need to hire all of these positions or simply a few, depending on the size and needs of your business. You might also hire multiple workers for a single role or a single worker for multiple roles, again depending on need.
Free-of-charge methods to recruit employees include posting ads on popular platforms such as LinkedIn, Facebook, or Jobs.com. You might also consider a premium recruitment option, such as advertising on Indeed, Glassdoor, or ZipRecruiter. Further, if you have the resources, you could consider hiring a recruitment agency to help you find talent.
Step 13: Start Making Money!
Electricians are in high demand. The industry is worth over a shocking $200 billion in the United States alone! You can start your own electrical business and get just a few watts of that market to make a healthy profit. Even working by yourself from your home, you’ll be doing well since you can charge $100 per hour or even more.
Your skills are valuable, and you’ll be performing an essential service as well. Now that you’ve added more knowledge to your toolbelt, you’re ready to start wiring up a successful electrical business!
Electrical Business FAQs
How much does it cost to start an electrical business?
If you’re already a licensed electrician, you could start your own electrical business from home for $3,000 or even less if you already have all the tools and equipment. If you need to learn to be an electrician and want to set up a shop with staff, it will be closer to $25,000.
How much should I charge for electrical services?
Electricians generally charge between $75 to $100 per hour plus parts. Some also charge a markup on parts and an extra charge to cover the company overhead.
What licenses do I need for an electrical business?
In most states, you need to be a licensed electrical contractor. You also may need other licenses and permits at the state and local levels. Check with your local governments for requirements.
How do I become a licensed electrician?
Every state has its own requirements to become licensed. Some require a certain number of hours or years working with a licensed electrician, and some require more formal training. You also may have to pass an exam.