4 Types of Small Scale Manufacturing Businesses Explained
Jun, 10 2025
Most people think of small businesses as coffee shops or food trucks, but small scale manufacturing is its own wild world. If you want to actually make stuff—think furniture, soap, or gadgets—you need to know where your business fits. It’s not just about what you’re making, but how you’re set up to make it. Are you working solo in your garage, running a small team, or partnering with others to handle custom jobs?
Here’s something not everyone tells you: figuring out your business type can save you money, headaches, and even open up new sources of funding or tax breaks. Each type has its quirks, its upsides, and its gotchas. I’ve seen people waste months (and way too much cash) by picking the wrong path. Let’s sort through what actually matters so you avoid rookie mistakes right out of the gate.
- Why Small Scale Manufacturing Still Matters
- Type 1: Home-Based Manufacturing
- Type 2: Artisan and Craft Businesses
- Type 3: Contract and Job Shop Manufacturing
- Type 4: Small Factories and Production Units
- Picking What’s Right for You
Why Small Scale Manufacturing Still Matters
People are always saying things have gone global and big companies run the show. But get this—over 98% of all manufacturing firms are classified as small. That’s not just talk; the U.S. Census Bureau confirms it. Even though giant brands make a lot of headlines, small scale shops and makers keep local economies moving. They’re the reason you see a variety of products on Etsy, local stores, and even online shops you never heard of last year.
Small scale manufacturing keeps people employed right where they live. If you look at job numbers, these businesses create more than half of new manufacturing jobs in the U.S. every year. With so much supply chain drama lately—like chip shortages and broken shipping routes—local makers stepped in and helped fill gaps when the big guys couldn’t deliver. That flexibility is something the big factories just can’t pull off fast.
Here’s the thing about starting small: you don’t need a huge investment. A lot of successful businesses started with just a few thousand dollars, some tools, and a dream (plus a healthy amount of stubbornness). It’s common to see home-based makers turning out profits in the first year if they nail their market and keep costs tight.
Another reason small business types for manufacturing are worth paying attention to: they often create unique products big companies can’t bother with. Whether it’s custom kitchen gadgets, eco-friendly soaps, or locally-made furniture, small operations are more creative and meet niche customer needs that the giants ignore.
| Metric | Data |
|---|---|
| Percent of total manufacturing firms | 98.4% |
| Avg. employees per small manufacturer | 20 |
| New manufacturing jobs from small businesses | 55% annually |
| Startup capital needed (typical range) | $5,000 - $150,000 |
If you want to build something, launch your own brand, or just stop working for someone else, starting small still gives you a real shot at making it work. Your first step? Figure out what business type actually fits your product and your life. The rest starts falling into place after that.
Type 1: Home-Based Manufacturing
Home-based manufacturing is where a lot of people in small scale manufacturing start. It’s surprisingly common—there are millions of these setups across the world right now. Think candle making, bath bombs, printed T-shirts, handmade soaps, or even 3D-printed toys. If you’ve got a spare room, basement, or garage, you’ve got a potential factory.
This kind of business keeps costs low. You don’t need to pay for outside rent, and you usually avoid the headache of big business permits. The startup cash can be pretty low—sometimes just a few hundred or a few thousand bucks for basic tools and materials. There’s flexibility, control, and the freedom to experiment. If you have a day job or kids (like my own son Ewan running around the house), this flexibility is gold.
Yet, you have to play by some rules. You’ll need to check your local zoning regulations. Some places don’t allow certain types of production at home, and selling food, cosmetics, or anything electrical comes with its own safety regulations. Insurance is cheap, but skipping it means risking everything if there’s an accident or fire.
Online sales are your best friend here. Platforms like Etsy, Shopify, and even Instagram make it dead simple to find customers for pretty much anything you dream up. Most successful home manufacturers don’t just stay local—they ship across the country, or even worldwide. Smart folks use free or cheap marketing tactics like social media or teaming up with other makers for cross-promotion. That’s how you stand out.
If you want to test the waters in small business types before going all-in, home-based manufacturing is how many pros get started. The barriers are low, but the opportunity to grow is very real if you manage costs and keep quality tight.
Type 2: Artisan and Craft Businesses
Artisan and craft businesses are basically small outfits that turn unique skills or creative talents into products people love. These folks aren’t working in big factories—they’re making candles at the kitchen table, hand-stitching leather wallets, or throwing pottery in backyard sheds. The big thing here? Personality and product quality matter more than how much stuff you crank out.
This space has exploded in the last decade. Sites like Etsy, local farmer’s markets, and Instagram have turned weekend hobbies into main gigs for thousands. Back in 2023, Etsy reported over 8 million active sellers worldwide, showing just how popular homegrown craft businesses have become.
The main charm of artisan shops is the personal touch. Customers want the story behind what they’re buying, and they’ll often pay extra for something meaningful or locally made. Some business ideas that work well in this type:
- Soap, bath bombs, or skincare made with natural stuff
- Candles or home goods (think wood carvings, macramé, or ceramics)
- Jewelry or fashion pieces, especially with custom options
- Baked goods, jams, hot sauces, and other small-batch food items
If you go down this path, being small is actually a selling point. People expect limited batches and a personal vibe. But here’s what you need to keep in mind if you want your small business types in craft to actually make money:
- Stick to higher prices to make up for your time—don’t undersell yourself.
- Tell your story. Honestly, half the battle is getting someone to care about your process or your backstory.
- Lean into local markets, pop-up events, and online platforms built for indie sellers. Don’t just rely on word-of-mouth.
- Watch your costs. A lot of people get stuck with too much inventory or spend way too much on supplies. Small-batch means less waste if you keep it tight.
Don’t be afraid to start super small. Plenty of well-known crafters got going at their kitchen table, shipping only a few items a week before things took off. You don’t need huge equipment or a shop; what matters most here is what you bring to the table, not just what you make.
Type 3: Contract and Job Shop Manufacturing
This is where things get technical but also really interesting. Contract and job shop manufacturers don’t make their own products for the market. Instead, they make stuff for other businesses, kind of like being the behind-the-scenes MVP. For example, a local metal shop might get hired to cut custom bike parts, or a plastics job shop could mold thousands of parts for a nearby appliance maker. You’re in business to handle specific projects or ongoing production for others—usually right when they need it.
This approach is popular for small scale manufacturing because it skips a lot of risk. You don’t have to worry about launching your own brand or marketing products to regular customers. Instead, you focus on doing the work, meeting deadlines, and keeping your equipment running. The catch? You’re juggling different jobs, timelines, and sometimes tricky client demands. Quick tip: keeping a good reputation and nailing quality standards really pays off here.
Check out some common examples you’ll see out in the real world:
- Machine shops making auto parts or repair parts for local factories
- Electronics job shops assembling custom circuit boards for tech startups
- Woodworking contractors making custom cabinetry for building companies
- Textile job shops handling small clothing runs for boutique fashion brands
How much can you make? It depends on complexity, experience, and what kind of orders you land. Here’s a quick look at average yearly revenue for small job shops by sector, based on a 2023 small business report:
| Job Shop Type | Avg. Yearly Revenue (USD) |
|---|---|
| Metal Fabrication | $320,000 |
| Electronics Assembly | $270,000 |
| Custom Woodworking | $180,000 |
| Textile Production | $140,000 |
If you want to jump in, these are moves worth making:
- Pick a niche you know—clients rely on skill, not just price.
- Invest in reliable equipment, even if it’s used. Downtime kills profit.
- Build relationships with local businesses. Referrals bring steady work.
- Set pricing clearly. Rushed jobs with sloppy estimates can wreck your margins.
For anyone looking at small business types in manufacturing, job shops and contract gigs are proven paths that keep people busy, even if the products never show your name.
Type 4: Small Factories and Production Units
This is where small scale manufacturing gets serious. Small factories and production units kick things up a notch—not garage-level, not mega-corporation, but right there in the middle. Usually, these are places with a dozen to maybe fifty employees, machines doing the heavy lifting, and some clear systems to churn out products fast and in bulk.
Why set up a small factory instead of working solo? You get more control over quality, faster production, and the chance to scale. Local brands looking to go national often start here, like the folks who upgrade from making hot sauce in their kitchen to running a modest saucing plant. Instead of dozens, you’re doing hundreds or thousands of units a day.
- Space matters: Most small factories take up 2,000 to 15,000 square feet—think big workshop with storage.
- Equipment counts: Machines like injection molders, CNC routers, or packaging lines are common.
- Teamwork: Even family-run shops usually pull in outside hires to keep things moving.
Costs aren’t pocket change, though. In 2024, the average cost to launch a small factory in the U.S.—including rent, initial machinery, and safety permits—was roughly $150,000 to $500,000, based on data from the National Association of Manufacturers. You need a plan and some capital, but you don’t need millions.
| Typical Small Factory Stats (U.S., 2024) | Details |
|---|---|
| Number of Employees | 10-50 |
| Annual Revenue | $500k - $5M |
| Setup Cost | $150k - $500k |
| Main Products | Food items, clothing, electronics parts, furniture |
Here’s where small scale manufacturing really shows its strength. Small production units are flexible. One month you might be making wooden toys, and next month pivoting to home accessories, all with the same crew and core machines. Adjusting batch sizes or changing products is doable without the red tape of larger operations.
If you’re eyeing this path, here’s some advice I wish I’d heard starting out:
- Don’t cheap out on quality control—bad batches can ruin your brand.
- Treat safety as a must, not a suggestion. One accident can set you back months.
- Local market demand is your friend—check who truly needs your product before scaling up.
Small factories are the backbone of local economies and make up a big part of the small business types that keep shelves stocked with unique, homegrown goods. If you want a step up from solo work but not the megacorp headaches, this lane might just be your best shot.
Picking What’s Right for You
Finding the best fit for your small scale manufacturing business isn’t about chasing what’s hot or doing what your neighbor does. It comes down to honest answers about your budget, skills, and probably how much risk (and chaos) you can take. Ask yourself: do you want to keep things small and manageable, or are you aiming to grow into a local brand with a small crew?
Here’s something that helps: look at your resources. Got just a garage and a tight budget? Home-based or artisan setups keep overhead low. If you have access to a few more hands or a small shop, contract manufacturing might be your lane. Got bigger funds or experience running teams? A small factory could make sense.
- small business types like home-based or artisan models have fewer upfront costs, but scaling can be tough.
- Contract and job shop businesses solve other people’s headaches—think custom metal parts or short production runs—but you might get hit with up-and-down work schedules.
- Small factories eat up more money and paperwork, but you get more structure and better chances with bigger clients.
Most small manufacturers (honest stat, taken from a 2024 U.S. Census Bureau report) start with $5,000 to $50,000 in startup capital. But here’s how startup costs can break down across business types:
| Business Type | Typical Startup Cost | Average Number of Employees |
|---|---|---|
| Home-Based Manufacturing | $3,000 - $15,000 | 1-2 |
| Artisan/Craft Business | $5,000 - $25,000 | 1-5 |
| Contract/Job Shop | $20,000 - $100,000 | 3-10 |
| Small Factory/Production Unit | $50,000 - $250,000+ | 5-30+ |
Before you commit, talk to at least one business owner in your space. People love to share what they wish they knew at the start. You can also check local small business centers or manufacturing meetups—sometimes they’ll let you walk through someone else’s process before you spend a dime.
One last tip: leave yourself room to pivot. The biggest regret Ewan’s robotics club coach ever had was locking himself into a five-year lease before he tested demand. Start small, see what clicks, and only then double down. There’s no one-size-fits-all—but when you match your setup with what you can manage, your odds of sticking around for the long haul get a lot better.