Profit margin by industry

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.

Industry Averages Profit Margins

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 Apr 2024:

Industry Average Gross Profit Margin Average Net Profit Margin Number of companies
Advertising Agencies 47.8% -6.8% 22
Aerospace & Defense 28.1% 4.1% 50
Agricultural Inputs 29.4% 5.8% 11
Airlines 47.5% 0.9% 13
Apparel Manufacturing 45.8% 3.2% 17
Apparel Retail 41% 4% 28
Asset Management 82.9% 23.9% 72
Auto Manufacturers 11.3% 7.2% 15
Auto Parts 21.4% 2.1% 46
Auto & Truck Dealerships 28.4% 4.1% 14
Banks - Diversified 88.6% 25.3% 6
Banks - Regional 99.8% 25.2% 276
Beverages - Non-Alcoholic 45.4% 11.4% 9
Beverages - Wineries & Distilleries 37.8% 9.6% 9
Biotechnology 86.5% -213.2% 506
Broadcasting 39.6% -4.3% 16
Building Materials 29.8% 15.9% 7
Building Products & Equipment 30.8% 8.4% 29
Business Equipment & Supplies 32.8% 1.4% 7
Capital Markets 81.9% 11.3% 33
Chemicals 18.8% 4.6% 17
Communication Equipment 39.1% -7.9% 51
Computer Hardware 35.2% -2.1% 29
Conglomerates 28.6% 2.1% 12
Consulting Services 41.2% 4.5% 16
Consumer Electronics 30.3% -15.1% 12
Credit Services 84.1% 20.1% 44
Department Stores 34.5% 2.8% 5
Diagnostics & Research 46.9% -109.1% 67
Discount Stores 26.1% 1.6% 9
Drug Manufacturers - General 71% 17.1% 12
Drug Manufacturers - Specialty & Generic 53.8% -109.5% 48
Education & Training Services 52.2% 4.8% 16
Electrical Equipment & Parts 28.9% 6.5% 42
Electronic Components 29.9% 3.1% 30
Electronic Gaming & Multimedia 61.6% 2.8% 7
Electronics & Computer Distribution 19.2% 2% 6
Engineering & Construction 17.4% 3.1% 30
Entertainment 47.5% -8% 37
Farm & Heavy Construction Machinery 21.1% 7.8% 22
Farm Products 12% 3% 18
Financial Data & Stock Exchanges 71.4% 29% 10
Food Distribution 14.3% 0.8% 9
Footwear & Accessories 45.3% 7% 11
Furnishings, Fixtures & Appliances 36.2% 3.2% 19
Gambling 54.7% 5.8% 11
Gold 25.1% -2.9% 27
Grocery Stores 27.4% 2% 10
Healthcare Plans 19.3% -9.2% 12
Health Information Services 48.2% -41.1% 32
Home Improvement Retail 42.4% 0.2% 7
Household & Personal Products 55.2% 5.9% 24
Industrial Distribution 29.5% 4.8% 17
Information Technology Services 36.8% -1.1% 53
Insurance Brokers 89.7% 6.3% 12
Insurance - Diversified 55.4% 11.8% 11
Insurance - Life 56.2% 7.7% 16
Insurance - Property & Casualty 49.1% 8.7% 36
Insurance - Specialty 77.9% 15% 16
Integrated Freight & Logistics 39.2% 4.8% 15
Internet Content & Information 63.4% -3.8% 36
Internet Retail 45.4% -0.5% 22
Leisure 41.8% 2.5% 23
Lodging 33.1% 5.7% 9
Luxury Goods 44.5% 5.2% 5
Marine Shipping 47.9% 6.4% 23
Medical Care Facilities 36.6% -28% 39
Medical Devices 63.7% -77.1% 102
Medical Distribution 19.9% 0.1% 7
Medical Instruments & Supplies 53.9% -31.3% 45
Metal Fabrication 24.9% 4.8% 13
Mortgage Finance 87.2% 11.8% 17
Oil & Gas Drilling 37.2% 11.9% 6
Oil & Gas E&P 65.3% 21% 64
Oil & Gas Equipment & Services 27.8% 4.9% 43
Oil & Gas Integrated 29.8% 10% 6
Oil & Gas Midstream 49.5% 20.9% 37
Oil & Gas Refining & Marketing 11.1% 0.2% 18
Other Industrial Metals & Mining 18.8% -1.8% 15
Other Precious Metals & Mining 27.2% 13.3% 12
Packaged Foods 28% 3.5% 42
Packaging & Containers 25.2% 3.8% 22
Paper & Paper Products 13.2% -4.2% 5
Personal Services 38.4% 6.1% 10
Pharmaceutical Retailers 40.2% -21.7% 8
Pollution & Treatment Controls 35.7% 2.1% 7
Publishing 59.5% 3.7% 7
Railroads 35.3% 9.4% 8
Real Estate - Development 45.3% 4.3% 10
Real Estate - Diversified 24.4% N/A 4
Real Estate Services 38.9% -0.3% 24
Recreational Vehicles 19.7% 5.3% 15
REIT - Diversified 71.3% 22.8% 17
REIT - Healthcare Facilities 69.4% 11.3% 15
REIT - Hotel & Motel 42.7% 6.4% 15
REIT - Industrial 72.6% 26.3% 16
REIT - Mortgage 89.9% 23.1% 35
REIT - Office 62.7% -8.6% 24
REIT - Residential 57.5% 12.5% 19
REIT - Retail 76% 22.8% 21
REIT - Specialty 53.5% 14.2% 15
Rental & Leasing Services 42.6% 11.9% 19
Residential Construction 24.7% 10.9% 21
Resorts & Casinos 49.2% 5.4% 18
Restaurants 39.5% 5.2% 41
Scientific & Technical Instruments 47.8% -3.4% 24
Security & Protection Services 36.8% 7% 14
Semiconductor Equipment & Materials 48.1% 11.7% 26
Semiconductors 43.7% -0.1% 64
Software - Application 62.1% -6.6% 190
Software - Infrastructure 63.7% -2.5% 89
Solar 23.4% -18% 13
Specialty Business Services 30.6% 4.2% 26
Specialty Chemicals 26% 4.3% 46
Specialty Industrial Machinery 34.7% 7.8% 73
Specialty Retail 37.5% 1.3% 40
Staffing & Employment Services 34.1% 4.6% 23
Steel 16.9% 4.1% 15
Telecom Services 58.9% 3.4% 33
Textile Manufacturing 19.8% -1.6% 4
Thermal Coal 35.6% 22.1% 9
Tobacco 44.6% 12.4% 6
Tools & Accessories 34.6% 7% 11
Travel Services 55.1% 5.7% 14
Trucking 50.6% 6.3% 11
Uranium 28.4% N/A 4
Utilities - Diversified 39.2% 13.3% 15
Utilities - Regulated Electric 38.6% 11.1% 25
Utilities - Regulated Gas 42% 12.2% 14
Utilities - Regulated Water 54.1% 17.1% 12
Utilities - Renewable 32.7% 10.8% 11
Waste Management 29.4% 3% 12

For example, the average gross profit margin for the Banks - Regional industry is around 99.8%, and the average gross profit margin for the REIT - Mortgage industry is around 89.9%. On the other hand, the average gross profit margin for the Oil & Gas Refining & Marketing industry is around 11.1%, and the average gross profit margin for the Auto Manufacturers industry is around 11.3%.

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.

Industries with highest gross profit margin

You can explore the top industries with highest gross profit margin in the chart and table below. The chart allows you to apply additional sector-based filters to the industries, enabling you to explore a breakdown of the industries with highest gross profit margin within each sector.

Industry Average Gross Profit Margin Average Net Profit Margin Number of companies
Banks - Regional 99.8% 25.2% 276
REIT - Mortgage 89.9% 23.1% 35
Insurance Brokers 89.7% 6.3% 12
Banks - Diversified 88.6% 25.3% 6
Mortgage Finance 87.2% 11.8% 17
Biotechnology 86.5% -213.2% 506
Credit Services 84.1% 20.1% 44
Asset Management 82.9% 23.9% 72
Capital Markets 81.9% 11.3% 33
Insurance - Specialty 77.9% 15% 16

Industries with lowest gross profit margin

Industries with the lowest gross profit margin are shown in the following chart and table. You can use the chart to group industries by sector and find the ones with lowest gross profit margin in each sector.

Industry Average Gross Profit Margin Average Net Profit Margin Number of companies
Oil & Gas Refining & Marketing 11.1% 0.2% 18
Auto Manufacturers 11.3% 7.2% 15
Farm Products 12% 3% 18
Paper & Paper Products 13.2% -4.2% 5
Food Distribution 14.3% 0.8% 9
Steel 16.9% 4.1% 15
Engineering & Construction 17.4% 3.1% 30
Chemicals 18.8% 4.6% 17
Other Industrial Metals & Mining 18.8% -1.8% 15
Electronics & Computer Distribution 19.2% 2% 6

Understanding Gross Profit Margin

Gross profit margin is a financial metric used to assess the financial health and efficiency of a publicly traded company by indicating the proportion of money left over from revenues after accounting for the cost of goods sold (COGS). It is expressed as a percentage and calculated using the formula:

Gross Margin (%) = (Revenue – Cost of goods sold) / Revenue

Gross profit margin is a critical financial metric that serves as an indicator of a publicly traded company's profitability and operational efficiency by showing the percentage of revenue that exceeds the cost of goods sold (COGS). It offers insights into how well a company controls its production costs and its ability to generate profit from sales, reflecting on its financial health and competitive positioning. This metric is invaluable for investors, analysts, and the company's management, as it aids in assessing the company's profitability before other expenses are deducted, facilitating comparative analysis over time and against peers in the industry. A higher gross profit margin suggests a company is efficiently managing its direct costs and selling its products at a higher markup, which can indicate stronger financial health and potentially higher returns for investors.

Understanding Net Profit Margin

Net profit margin is a crucial financial metric that measures the overall profitability of a publicly traded company, expressed as a percentage of its total revenues. It indicates how much net income (profit after all expenses) a company generates from its total revenue. The formula to calculate net profit margin is:

Net Profit Margin (%) = Net Profit / Revenue

Net profit margin is a fundamental financial metric that represents the proportion of net income to total revenues for a publicly traded company, illustrating how effectively it converts sales into profits after deducting all expenses, such as cost of goods sold, operating expenses, taxes, and interest. This ratio is a comprehensive indicator of a company's overall financial health and operational efficiency, revealing its ability to manage expenses and maximize profitability from its revenue streams. It is critically evaluated by investors, analysts, and stakeholders to gauge the company's profitability, compare its performance against peers, and make informed investment decisions. A higher net profit margin indicates a company's success in generating income relative to its revenue, highlighting its financial robustness and operational effectiveness in controlling costs.

Gross Profit margins vs Net Profit margins

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:

  1. Sales volume: Higher sales volume can increase revenue and gross profit, but it may also increase operating expenses, leading to lower net profit margins.
  2. Competition: Companies operating in highly competitive markets may have lower gross and net profit margins due to pricing pressures and higher marketing expenses.
  3. Industry: Different industries have different cost structures, which can affect both gross and net profit margins. For example, manufacturing companies may have higher COGS due to raw material costs, while service-based companies may have lower COGS but higher operating expenses.
  4. Efficiency: Operational efficiency, such as effective cost management, process optimization, and resource allocation, can lead to higher gross and net profit margins.
  5. Taxes and regulations: Taxes and regulatory compliance costs can impact a company's net profit margins.

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.