By understanding the average profit margins for different industries, investors can get a better sense of what is considered "normal" for a particular industry.
Assessing gross profit margin can be challenging since each business has its unique characteristics. By analyzing a company's gross and net profit margins, investors can get a better sense of how efficiently the company is operating and how much profit it is generating from its revenue.
Generally companies that prioritize sales volume or operate in competitive markets may have lower gross profit margins, even if they are financially stable. To gain insights from gross profit margins, it is essential to establish industry-specific benchmarks and consider broader business strategies. Comparing a company's gross profit margin to industry averages and other financial metrics such as operating margin and net profit can help determine a suitable ratio for that specific business.
The average gross and net profit margins can vary significantly across different industries. Here is a table of some common company industries in the US and their average gross profit margin and net profit margin as of Jun 2023:
| Industry | Average Gross Profit Margin | Average Net Profit Margin | Number of companies |
|---|---|---|---|
| Advertising Agencies | 41% | -9.8% | 23 |
| Aerospace & Defense | 27.1% | 5.6% | 47 |
| Agricultural Inputs | 34% | 6.4% | 10 |
| Airlines | 45.7% | 0.5% | 13 |
| Apparel Manufacturing | 45.6% | 3.5% | 17 |
| Apparel Retail | 39.8% | 5.4% | 30 |
| Asset Management | 83% | 18% | 73 |
| Auto Manufacturers | 15.1% | 6% | 16 |
| Auto Parts | 21% | 2.6% | 41 |
| Auto & Truck Dealerships | 28.3% | 1.9% | 14 |
| Banks - Diversified | 98.3% | 29.4% | 5 |
| Banks - Regional | 99.8% | 29.8% | 282 |
| Beverages - Non-Alcoholic | 43.2% | 11.1% | 9 |
| Beverages - Wineries & Distilleries | 38.3% | 4.3% | 9 |
| Biotechnology | 86.8% | -259.4% | 553 |
| Broadcasting | 41.7% | 1.9% | 18 |
| Building Materials | 25.2% | 11.7% | 6 |
| Building Products & Equipment | 29.4% | 9.3% | 30 |
| Business Equipment & Supplies | 29.8% | 3.8% | 8 |
| Capital Markets | 89.2% | 10.8% | 29 |
| Chemicals | 23.5% | 8.7% | 17 |
| Coking Coal | 35.6% | N/A | 4 |
| Communication Equipment | 38.9% | -4.1% | 52 |
| Computer Hardware | 34.4% | -0.2% | 25 |
| Conglomerates | 29.3% | 1.9% | 10 |
| Consulting Services | 40.1% | 8% | 16 |
| Consumer Electronics | 32.4% | -6.3% | 12 |
| Credit Services | 82.5% | 21.6% | 46 |
| Department Stores | 33.1% | 3.9% | 5 |
| Diagnostics & Research | 45.3% | -132.8% | 68 |
| Discount Stores | 25.4% | 2.8% | 9 |
| Drug Manufacturers - General | 72.9% | 20.1% | 11 |
| Drug Manufacturers - Specialty & Generic | 47.6% | -96.1% | 52 |
| Education & Training Services | 51.7% | 6.9% | 14 |
| Electrical Equipment & Parts | 26.3% | 5% | 39 |
| Electronic Components | 32.2% | 0.5% | 28 |
| Electronic Gaming & Multimedia | 61.5% | 4.4% | 9 |
| Electronics & Computer Distribution | 18.7% | 2.4% | 6 |
| Engineering & Construction | 15.7% | 2.5% | 34 |
| Entertainment | 45.4% | -5.3% | 37 |
| Farm & Heavy Construction Machinery | 19.7% | 5.1% | 21 |
| Farm Products | 13.3% | 4% | 15 |
| Financial Data & Stock Exchanges | 69.5% | 25.2% | 10 |
| Food Distribution | 16.4% | 0.7% | 10 |
| Footwear & Accessories | 43.5% | 5.3% | 11 |
| Furnishings, Fixtures & Appliances | 34.5% | 2.9% | 20 |
| Gambling | 55.9% | 8.5% | 11 |
| Gold | 22.7% | -3.9% | 14 |
| Grocery Stores | 26.9% | 2.1% | 10 |
| Healthcare Plans | 18.4% | -8.6% | 12 |
| Health Information Services | 49% | -58.3% | 33 |
| Home Improvement Retail | 41.7% | 5.6% | 7 |
| Household & Personal Products | 54.8% | 3.9% | 24 |
| Industrial Distribution | 28.3% | 5.7% | 16 |
| Information Technology Services | 38% | -2.6% | 49 |
| Insurance Brokers | 88.8% | 2.6% | 12 |
| Insurance - Diversified | 54.6% | 8% | 10 |
| Insurance - Life | 64.1% | 6% | 17 |
| Insurance - Property & Casualty | 57.2% | 5.4% | 38 |
| Insurance - Specialty | 89.7% | 10.6% | 15 |
| Integrated Freight & Logistics | 34% | 5.2% | 14 |
| Internet Content & Information | 61.8% | -11.3% | 32 |
| Internet Retail | 42.5% | -4.3% | 23 |
| Leisure | 38.1% | 4.9% | 28 |
| Lodging | 33.8% | 8.4% | 9 |
| Luxury Goods | 51.1% | 6.5% | 5 |
| Marine Shipping | 38.5% | 14.7% | 7 |
| Medical Care Facilities | 35.1% | -40.8% | 39 |
| Medical Devices | 59% | -99.9% | 105 |
| Medical Distribution | 19.6% | 0.2% | 7 |
| Medical Instruments & Supplies | 52.6% | -42.9% | 44 |
| Metal Fabrication | 24.4% | 6.1% | 12 |
| Mortgage Finance | 92.1% | 10.5% | 18 |
| Oil & Gas Drilling | 36.7% | 0.1% | 5 |
| Oil & Gas E&P | 71.9% | 36.2% | 67 |
| Oil & Gas Equipment & Services | 25% | 2% | 43 |
| Oil & Gas Integrated | 29.1% | 13.7% | 4 |
| Oil & Gas Midstream | 42.4% | 14.8% | 33 |
| Oil & Gas Refining & Marketing | 10.9% | 7.3% | 18 |
| Packaged Foods | 23.8% | 3.9% | 44 |
| Packaging & Containers | 24.2% | 5% | 22 |
| Paper & Paper Products | 17.9% | 1.2% | 5 |
| Personal Services | 39.8% | 2.2% | 13 |
| Pharmaceutical Retailers | 41.4% | -12.2% | 7 |
| Pollution & Treatment Controls | 34.2% | 0.9% | 7 |
| Publishing | 58.6% | -5.8% | 7 |
| Railroads | 37.1% | 3.5% | 9 |
| Real Estate - Development | 41.2% | 1.9% | 10 |
| Real Estate - Diversified | 28.6% | N/A | 4 |
| Real Estate Services | 39.9% | 4.3% | 21 |
| Recreational Vehicles | 22.4% | 7.9% | 16 |
| REIT - Diversified | 69.4% | 16.2% | 20 |
| REIT - Healthcare Facilities | 72.2% | 13.8% | 16 |
| REIT - Hotel & Motel | 43% | 9.9% | 16 |
| REIT - Industrial | 72.8% | 31% | 17 |
| REIT - Mortgage | 90.3% | 28.2% | 38 |
| REIT - Office | 63.8% | 6.9% | 24 |
| REIT - Residential | 58.2% | 21.1% | 18 |
| REIT - Retail | 73.1% | 24.5% | 23 |
| REIT - Specialty | 59.1% | 12% | 15 |
| Rental & Leasing Services | 39.6% | 11.5% | 20 |
| Residential Construction | 26% | 13.2% | 21 |
| Resorts & Casinos | 51.3% | 4.5% | 17 |
| Restaurants | 37.5% | 6.1% | 42 |
| Scientific & Technical Instruments | 47.1% | 3.3% | 23 |
| Security & Protection Services | 33.4% | 5.9% | 15 |
| Semiconductor Equipment & Materials | 46.8% | 11.1% | 24 |
| Semiconductors | 47% | 5% | 55 |
| Software - Application | 61% | -15.4% | 182 |
| Software - Infrastructure | 64.8% | -8.4% | 76 |
| Solar | 20.8% | -17.3% | 11 |
| Specialty Business Services | 28.6% | 3.5% | 28 |
| Specialty Chemicals | 27.3% | 6.4% | 48 |
| Specialty Industrial Machinery | 32% | 8.5% | 74 |
| Specialty Retail | 36.6% | 1.7% | 43 |
| Staffing & Employment Services | 34.6% | 4.2% | 23 |
| Steel | 17.2% | 6% | 15 |
| Telecom Services | 56.8% | 0.3% | 33 |
| Textile Manufacturing | 16% | -5.2% | 4 |
| Thermal Coal | 43.4% | 28.4% | 9 |
| Tobacco | 30.9% | 7.2% | 6 |
| Tools & Accessories | 33.3% | 6.4% | 11 |
| Travel Services | 29.8% | -1.3% | 12 |
| Trucking | 43.2% | 7.6% | 14 |
| Utilities - Diversified | 36% | 10.6% | 16 |
| Utilities - Regulated Electric | 34.9% | 11.3% | 25 |
| Utilities - Regulated Gas | 36.8% | 6.9% | 13 |
| Utilities - Regulated Water | 51.3% | 15.9% | 12 |
| Utilities - Renewable | 30.5% | 9.1% | 10 |
| Waste Management | 28.8% | 4.1% | 11 |
Please note that these figures are based on industry averages and can vary significantly depending on the specific company, its size, location, competition, and other factors.
For example, the average gross profit margin for the Banks - Regional industry is around 99.8%, and the average gross profit margin for the Banks - Diversified industry is around 98.3%. On the other hand, the average gross profit margin for the Oil & Gas Refining & Marketing industry is around 10.9%, and the average gross profit margin for the Farm Products industry is around 13.3%.
| Industry | Average Gross Profit Margin | Average Net Profit Margin | Number of companies |
|---|---|---|---|
| Banks - Regional | 99.8% | 29.8% | 282 |
| Banks - Diversified | 98.3% | 29.4% | 5 |
| Mortgage Finance | 92.1% | 10.5% | 18 |
| REIT - Mortgage | 90.3% | 28.2% | 38 |
| Insurance - Specialty | 89.7% | 10.6% | 15 |
| Capital Markets | 89.2% | 10.8% | 29 |
| Insurance Brokers | 88.8% | 2.6% | 12 |
| Biotechnology | 86.8% | -259.4% | 553 |
| Asset Management | 83% | 18% | 73 |
| Credit Services | 82.5% | 21.6% | 46 |
| Industry | Average Gross Profit Margin | Average Net Profit Margin | Number of companies |
|---|---|---|---|
| Oil & Gas Refining & Marketing | 10.9% | 7.3% | 18 |
| Farm Products | 13.3% | 4% | 15 |
| Auto Manufacturers | 15.1% | 6% | 16 |
| Engineering & Construction | 15.7% | 2.5% | 34 |
| Textile Manufacturing | 16% | -5.2% | 4 |
| Food Distribution | 16.4% | 0.7% | 10 |
| Steel | 17.2% | 6% | 15 |
| Paper & Paper Products | 17.9% | 1.2% | 5 |
| Healthcare Plans | 18.4% | -8.6% | 12 |
| Electronics & Computer Distribution | 18.7% | 2.4% | 6 |
Gross profit margin and net profit margin are two important financial metrics that measure a company's profitability. The main difference between them is the level of expenses that they take into account.
Gross profit margin is the percentage of revenue that a company retains after deducting the cost of goods sold (COGS). COGS includes direct costs such as materials, labor, and manufacturing overheads. A higher gross profit margin means that a company is earning more money per dollar of revenue, which indicates better operational efficiency.
Net profit margin, on the other hand, is the percentage of revenue that a company retains after deducting all expenses, including COGS, operating expenses, interest, taxes, and other charges. A higher net profit margin means that a company is earning more money after all expenses have been accounted for, which indicates better overall financial performance.
Several factors can affect both gross and net profit margins. These include:
Overall, while gross profit margin and net profit margin are both important metrics, they provide different insights into a company's financial health and performance. It's essential to consider both when evaluating a company's profitability and to compare them to industry benchmarks and other financial metrics to get a complete picture.
Several other factors can affect a company's gross and net profit margins like the size of the company, economic conditions, pricing strategies, and operating expenses.
For example, a larger company may be able to achieve higher economies of scale, which can result in higher profit margins. On the other hand, a company operating in a highly competitive market may need to lower its prices in order to remain competitive, which can result in lower profit margins.
Similarly, economic conditions can also have a significant impact on a company's profit margins. During a recession, for example, consumers may be less willing to spend money, which can result in lower revenue and lower profit margins for companies across the board.