There seems to be a steady flow of new discount brokerage firms in Indian stock markets. What is the minimum required client size for these firms to be profitable? There will be some critical mass required to reach break even level. What is the experience of those who have worked in this domain.
In any low cost business model, you need to have scale before you are able to turn profitable. Also the business has now moved away from just being low cost to being more about superior products at low cost. Just being low cost isn’t enough. The reason it is important is because in a low cost model like ours, investors don’t really yield any revenue. It has to be earned from active traders, and active traders move towards better products.
Anyways coming back to your question, profitability depends on your cost of running the business. So if you are generally frugal in terms of how you run the business with no advertising costs and all, maybe around 50,000 active clients is where you can turn profitable. To have 50,000 active clients, you will need 150,000 to 200,000 customers. And also like I said, if most of these active clients aren’t also actively trading and generating revenue and are just investors, than these numbers will need to be much higher.
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But there are many discount brokers like ezwealth , wisdom , finvasia etc having number of active ucc clietns 2~4000 .
Are they not making money ?
I don’t think so. As in, they might be making enough to sustain, but I don’t think enough to grow as a business.