Average Profit Margin by Industry

It depends heavily on industry, but as a rough rule: a net profit margin of 10% is considered average, 15-20% is good, and above 20% is excellent for most small businesses. However, grocery stores and restaurants healthily operate at 3-6% net margins, while software and consulting can exceed 25-40%. Always compare against your specific industry benchmark, not a universal number.

Gross profit margin = (Revenue − Cost of Goods Sold) ÷ Revenue. It measures how much you keep after direct production costs. Net profit margin = Net Income ÷ Revenue, after ALL expenses including rent, salaries, taxes, and interest. Gross margin is always higher than net margin. A restaurant might have a 70% gross margin but only a 5% net margin once labor and rent are paid.

Software/SaaS, financial services, real estate (rental), pharmaceuticals, and professional services (legal, accounting, consulting) typically have the highest net margins — often 18-40%. These businesses have low cost of goods sold and scale well because adding customers doesn't add much cost.

Grocery stores, restaurants, retail, construction, and agriculture have the thinnest net margins — often 2-7%. These are high-volume, high-competition businesses with significant cost of goods sold, labor, and overhead. They make money on turnover and volume rather than margin per sale.

Common reasons: pricing too low, high cost of goods sold (renegotiate with suppliers), excessive overhead, low sales volume not covering fixed costs, or high labor costs. Start by calculating your gross margin — if it's healthy but net margin is low, the problem is operating expenses. If gross margin itself is low, the problem is pricing or COGS.

Net profit margin = Net Income ÷ Revenue × 100. For example, $20,000 net profit on $200,000 revenue = 10% net margin. For gross margin: (Revenue − COGS) ÷ Revenue × 100. Use our free profit margin calculator to compute both instantly and compare against the benchmarks on this page.