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 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%.

Industries with highest gross profit margin

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

Industries with lowest gross profit margin

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 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.