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 Jul 2024:

Industry Average Gross Profit Margin Average Net Profit Margin Number of companies
Advertising Agencies 47.7% -4.7% 22
Aerospace & Defense 27.2% 4.8% 49
Agricultural Inputs 27.5% 1.9% 11
Airlines 47.2% 0% 13
Apparel Manufacturing 48.2% 3.3% 16
Apparel Retail 41.3% 3.8% 28
Asset Management 82.1% 24% 72
Auto Manufacturers 6.5% 7.3% 16
Auto Parts 21.5% 2.1% 46
Auto & Truck Dealerships 28.3% 1.8% 14
Banks - Diversified 88.6% 24.7% 6
Banks - Regional 99.8% 24.1% 274
Beverages - Non-Alcoholic 46.1% 14.6% 9
Beverages - Wineries & Distilleries 37.8% N/A 9
Biotechnology 86.6% -249.2% 489
Broadcasting 41.4% -3.8% 16
Building Materials 30.3% 17.8% 7
Building Products & Equipment 31.8% 9.2% 28
Business Equipment & Supplies 33.2% 1.6% 7
Capital Markets 82.8% 13.3% 33
Chemicals 18.2% 4.2% 17
Coking Coal 27.3% N/A 4
Communication Equipment 38.2% -9.1% 50
Computer Hardware 36.3% 0.4% 28
Conglomerates 29.3% 0.9% 12
Consulting Services 41.6% 6.5% 16
Consumer Electronics 32.5% -13.8% 12
Credit Services 83.9% 20.8% 44
Department Stores 34.4% 2.9% 5
Diagnostics & Research 46.6% -113.7% 65
Discount Stores 26.3% 1.5% 9
Drug Manufacturers - General 70.9% 12.6% 12
Drug Manufacturers - Specialty & Generic 54.6% -95.5% 47
Education & Training Services 54.4% 7.4% 16
Electrical Equipment & Parts 29.2% 5.2% 40
Electronic Components 29% 4.1% 30
Electronic Gaming & Multimedia 62.6% -4.4% 7
Electronics & Computer Distribution 14.6% 2.6% 5
Engineering & Construction 18.2% 3.2% 30
Entertainment 47.6% -7.8% 38
Farm & Heavy Construction Machinery 21.4% 7.9% 22
Farm Products 13.5% 2.8% 18
Financial Data & Stock Exchanges 72.1% 29.3% 10
Food Distribution 14.4% 0.8% 9
Footwear & Accessories 45.5% 6.8% 11
Furnishings, Fixtures & Appliances 37.8% 3.1% 18
Gambling 55.5% 5% 10
Gold 25.4% -3.4% 27
Grocery Stores 27.5% 1.9% 10
Healthcare Plans 20.6% -12.9% 12
Health Information Services 49.7% -49.6% 30
Home Improvement Retail 42.5% 2.9% 7
Household & Personal Products 55.7% 6.3% 24
Industrial Distribution 30% 4.8% 17
Information Technology Services 37% -0.7% 53
Insurance Brokers 89.8% 6.8% 12
Insurance - Diversified 60.3% 12.6% 11
Insurance - Life 55.4% 11.6% 14
Insurance - Property & Casualty 47.2% 9.8% 36
Insurance - Reinsurance 44.2% 14.9% 7
Insurance - Specialty 78.4% 13.5% 16
Integrated Freight & Logistics 39.1% 3.6% 15
Internet Content & Information 63.2% -4.3% 36
Internet Retail 45.4% -1.6% 22
Leisure 41.9% 3.9% 22
Lodging 32.8% 9.1% 9
Luxury Goods 43.9% 4.9% 5
Marine Shipping 49.1% 6.9% 23
Medical Care Facilities 34.5% -5.7% 39
Medical Devices 61.7% -74.6% 97
Medical Distribution 19.9% 3.7% 7
Medical Instruments & Supplies 52% -31.2% 45
Metal Fabrication 25% 4.8% 13
Mortgage Finance 88.1% 12.5% 17
Oil & Gas Drilling 36.5% 6.4% 6
Oil & Gas E&P 63.1% 15.2% 64
Oil & Gas Equipment & Services 28% 4.5% 43
Oil & Gas Integrated 30.3% 9.7% 6
Oil & Gas Midstream 49.2% 20.5% 35
Oil & Gas Refining & Marketing 11% 0.8% 18
Other Industrial Metals & Mining 15.6% -4.6% 15
Other Precious Metals & Mining 26.6% N/A 12
Packaged Foods 28.7% 4.1% 42
Packaging & Containers 25.6% 4.3% 21
Paper & Paper Products 13.4% -4.7% 5
Personal Services 40% 8.2% 10
Pharmaceutical Retailers 40.4% -21% 8
Pollution & Treatment Controls 37.9% 3.3% 7
Publishing 59.9% 4.5% 7
Railroads 35.4% 9.3% 8
Real Estate - Development 45.1% 6.2% 9
Real Estate - Diversified 31.7% N/A 4
Real Estate Services 40.5% -1.8% 25
Recreational Vehicles 22% 3.5% 14
REIT - Diversified 68.4% 19.9% 17
REIT - Healthcare Facilities 69% 10.7% 15
REIT - Hotel & Motel 42.7% 6.5% 15
REIT - Industrial 72.4% 27.2% 16
REIT - Mortgage 90.8% 22.6% 35
REIT - Office 61.8% -9.7% 24
REIT - Residential 57% 13.6% 18
REIT - Retail 73.1% 21.4% 21
REIT - Specialty 52.8% 16.4% 15
Rental & Leasing Services 43.6% 11.2% 17
Residential Construction 25.1% 11.2% 20
Resorts & Casinos 49.1% 2.9% 18
Restaurants 40% 4.6% 40
Scientific & Technical Instruments 47.9% -2.4% 24
Security & Protection Services 40.1% 9.4% 14
Semiconductor Equipment & Materials 46.9% 9.4% 26
Semiconductors 42.5% -0.3% 64
Software - Application 62.7% -4.2% 187
Software - Infrastructure 63.7% -2.9% 89
Solar 25.5% -21.6% 12
Specialty Business Services 30.8% 4.9% 25
Specialty Chemicals 26.8% 3.8% 44
Specialty Industrial Machinery 35% 7.5% 73
Specialty Retail 38% 1.9% 40
Staffing & Employment Services 33.7% 4.4% 23
Steel 16.7% 3.3% 15
Telecom Services 59.9% 3.5% 33
Textile Manufacturing 19.3% -2.1% 4
Thermal Coal 34.7% 9.9% 9
Tobacco 45.2% 12.6% 6
Tools & Accessories 35.3% 7.7% 11
Travel Services 57.1% 6.5% 13
Trucking 50.8% 5.5% 11
Uranium 24.3% N/A 4
Utilities - Diversified 40% 13.5% 15
Utilities - Regulated Electric 40.1% 11.5% 25
Utilities - Regulated Gas 44.7% 11.5% 14
Utilities - Regulated Water 54.9% 18.6% 12
Utilities - Renewable 36.3% 11.8% 10
Waste Management 29.3% 0.5% 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 90.8%. On the other hand, the average gross profit margin for the Auto Manufacturers industry is around 6.5%, and the average gross profit margin for the Oil & Gas Refining & Marketing industry is around 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.

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% 24.1% 274
REIT - Mortgage 90.8% 22.6% 35
Insurance Brokers 89.8% 6.8% 12
Banks - Diversified 88.6% 24.7% 6
Mortgage Finance 88.1% 12.5% 17
Biotechnology 86.6% -249.2% 489
Credit Services 83.9% 20.8% 44
Capital Markets 82.8% 13.3% 33
Asset Management 82.1% 24% 72
Insurance - Specialty 78.4% 13.5% 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
Auto Manufacturers 6.5% 7.3% 16
Oil & Gas Refining & Marketing 11% 0.8% 18
Paper & Paper Products 13.4% -4.7% 5
Farm Products 13.5% 2.8% 18
Food Distribution 14.4% 0.8% 9
Electronics & Computer Distribution 14.6% 2.6% 5
Other Industrial Metals & Mining 15.6% -4.6% 15
Steel 16.7% 3.3% 15
Chemicals 18.2% 4.2% 17
Engineering & Construction 18.2% 3.2% 30

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.