Profits by Industry
Businesses in the same industry have similar profit margins. They have similar business cycles, work with similar vendors and require similar capital levels to operate. Answering the “How am I doing?” question requires an industry perspective.
The numbers below are industry averages. An individual business will vary within a range. A business with a 10% net profit margin in an industry with a 20% margin needs to improve. If the business has a 25% margin it is doing very well.
High gross profits
Gross margin % is (1- cost of goods sold)/sales * 100. We expect service industries to have higher profit margins because they don’t have to buy widgets to sell. NASIC codes are in parentheses.
- Legal services (5411) percentage is 92.07%
- Spectator sports (7112) percentage is 81.58%
- General rental centers (5323) percentage is 74.18%
High gross profit does not necessarily mean high net profit. Many businesses with very high gross profits have high net profits. However, the differences between the gross and net profits vary considerably.
- Legal services net margin is 14.25%
- Spectator sports net margin is 5.73%
- General rental centers net margin is 5.39%
Low net profits
Net profit margin % is (1 – cost of goods sold – expenses)/sales * 100. The industry with the lowest net profit margin is Cable and other subscription programming (5152) at -3.13%. Others with low margins include
- Automobile dealers (4411) net margin is 1.44%
- Grocery stores (4451) net margin is 1.98%
- Florists (4531) net margin is 3.14%
Very low net profits do not necessarily mean very low gross margins.
- Automobile dealer net margins are 16.16%.
- Grocery store net margins are 24.22%
- Gross margin for florists is 55.54%.
There are obvious trends: industries with high gross profits tend to have high net profits. Net profit margins are similar for automobile dealers and grocery stores. Both business are retail however, automobile dealers turn their inventory every 68.94 days and grocery stores turn in 27.69 days. Their balance sheets are quite different.