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 Feb 2024:
| Industry | Average Gross Profit Margin | Average Net Profit Margin | Number of companies |
|---|---|---|---|
| Advertising Agencies | 46% | -9.4% | 22 |
| Aerospace & Defense | 26.4% | 4.6% | 50 |
| Agricultural Inputs | 31.8% | 6.5% | 11 |
| Airlines | 47.5% | 1.4% | 13 |
| Apparel Manufacturing | 45.6% | 3.5% | 17 |
| Apparel Retail | 40% | 3.7% | 29 |
| Asset Management | 81.9% | 23.8% | 73 |
| Auto Manufacturers | 11.4% | 7.2% | 17 |
| Auto Parts | 21.2% | 2% | 46 |
| Auto & Truck Dealerships | 27.2% | 5.1% | 14 |
| Banks - Diversified | 88.7% | 26% | 6 |
| Banks - Regional | 99.8% | 27.5% | 279 |
| Beverages - Non-Alcoholic | 45.2% | 9.2% | 9 |
| Beverages - Wineries & Distilleries | 40.2% | 8.6% | 9 |
| Biotechnology | 86.3% | -254.7% | 519 |
| Broadcasting | 41.9% | -0.6% | 16 |
| Building Materials | 29% | 15% | 7 |
| Building Products & Equipment | 30.7% | 9.3% | 31 |
| Business Equipment & Supplies | 32.1% | 2.9% | 7 |
| Capital Markets | 83.7% | 11.9% | 33 |
| Chemicals | 18.6% | 5.4% | 17 |
| co*king Coal | 35.7% | N/A | 4 |
| Communication Equipment | 39.9% | -6.9% | 53 |
| Computer Hardware | 35.7% | -2.3% | 28 |
| Conglomerates | 28.5% | 1.5% | 12 |
| Consulting Services | 41.6% | 5.5% | 16 |
| Consumer Electronics | 29.4% | -11.2% | 12 |
| Credit Services | 84% | 22.5% | 45 |
| Department Stores | 33.4% | 2.9% | 5 |
| Diagnostics & Research | 46.4% | -114.3% | 67 |
| Discount Stores | 26% | 2.3% | 9 |
| Drug Manufacturers - General | 71.8% | 18.4% | 12 |
| Drug Manufacturers - Specialty & Generic | 51.5% | -88.6% | 50 |
| Education & Training Services | 52.1% | 5.7% | 16 |
| Electrical Equipment & Parts | 27.6% | 6.3% | 42 |
| Electronic Components | 31.2% | 3.9% | 30 |
| Electronic Gaming & Multimedia | 63.2% | 3.1% | 7 |
| Electronics & Computer Distribution | 18.9% | 2% | 6 |
| Engineering & Construction | 17% | 3.1% | 30 |
| Entertainment | 46.4% | -8.3% | 37 |
| Farm & Heavy Construction Machinery | 21.9% | 7% | 22 |
| Farm Products | 11.9% | 5.3% | 18 |
| Financial Data & Stock Exchanges | 71% | 28.4% | 10 |
| Food Distribution | 14.2% | 0.6% | 9 |
| Footwear & Accessories | 44.7% | 5.9% | 11 |
| Furnishings, Fixtures & Appliances | 36% | 3.5% | 19 |
| Gambling | 55.5% | 4.9% | 12 |
| Gold | 27.4% | 0.9% | 27 |
| Grocery Stores | 27.2% | 2% | 10 |
| Healthcare Plans | 18.8% | -13.4% | 12 |
| Health Information Services | 48.5% | -46.1% | 33 |
| Home Improvement Retail | 41.9% | 1.4% | 7 |
| Household & Personal Products | 55.1% | 5.1% | 24 |
| Industrial Distribution | 29.8% | 5.1% | 17 |
| Information Technology Services | 37.6% | 1.5% | 54 |
| Insurance Brokers | 89.2% | 6.4% | 12 |
| Insurance - Diversified | 62% | 10.7% | 11 |
| Insurance - Life | 59.9% | 10.8% | 16 |
| Insurance - Property & Casualty | 47.9% | 7.4% | 36 |
| Insurance - Specialty | 79.4% | 18.6% | 16 |
| Integrated Freight & Logistics | 37.3% | 4.5% | 15 |
| Internet Content & Information | 62.8% | -4.2% | 36 |
| Internet Retail | 45.5% | 0.9% | 22 |
| Leisure | 40.3% | -0.6% | 25 |
| Lodging | 33.2% | 7.8% | 9 |
| Luxury Goods | 44.5% | 4.8% | 5 |
| Marine Shipping | 47.5% | 6.5% | 24 |
| Medical Care Facilities | 35.2% | -29.2% | 39 |
| Medical Devices | 61.2% | -91.3% | 104 |
| Medical Distribution | 19.6% | 0.1% | 7 |
| Medical Instruments & Supplies | 52.7% | -70.5% | 45 |
| Metal Fabrication | 24.7% | 5.3% | 13 |
| Mortgage Finance | 92% | 13.9% | 17 |
| Oil & Gas Drilling | 37.8% | 15.5% | 6 |
| Oil & Gas E&P | 65.4% | 21% | 65 |
| Oil & Gas Equipment & Services | 26.7% | 3.8% | 44 |
| Oil & Gas Integrated | 30.2% | 10.4% | 7 |
| Oil & Gas Midstream | 49.3% | 20.2% | 37 |
| Oil & Gas Refining & Marketing | 11.2% | 0.5% | 18 |
| Other Industrial Metals & Mining | 23.3% | -5.5% | 15 |
| Other Precious Metals & Mining | 34.8% | N/A | 12 |
| Packaged Foods | 26.8% | 3.7% | 42 |
| Packaging & Containers | 25% | 2.9% | 22 |
| Paper & Paper Products | 13.2% | -5.2% | 5 |
| Personal Services | 41.8% | 6.7% | 11 |
| Pharmaceutical Retailers | 40.1% | -23.6% | 8 |
| Pollution & Treatment Controls | 32.4% | 5.2% | 7 |
| Publishing | 59.2% | 4.1% | 7 |
| Railroads | 34.7% | 8.1% | 8 |
| Real Estate - Development | 39.5% | 11.2% | 10 |
| Real Estate - Diversified | 24.2% | N/A | 4 |
| Real Estate Services | 38.5% | 1.3% | 24 |
| Recreational Vehicles | 21.6% | 5.7% | 15 |
| REIT - Diversified | 66.9% | 17.1% | 17 |
| REIT - Healthcare Facilities | 70.9% | 9.2% | 16 |
| REIT - Hotel & Motel | 42.9% | 5.4% | 15 |
| REIT - Industrial | 72.7% | 26% | 16 |
| REIT - Mortgage | 92.2% | 24.5% | 35 |
| REIT - Office | 62.5% | -5.9% | 24 |
| REIT - Residential | 57.4% | 14.2% | 19 |
| REIT - Retail | 72.1% | 20.9% | 21 |
| REIT - Specialty | 55.5% | 12% | 15 |
| Rental & Leasing Services | 44.2% | 12.6% | 20 |
| Residential Construction | 24.4% | 10.9% | 21 |
| Resorts & Casinos | 48.8% | 4.9% | 18 |
| Restaurants | 39.5% | 6% | 41 |
| Scientific & Technical Instruments | 43% | 0.3% | 24 |
| Security & Protection Services | 38.4% | 5.5% | 14 |
| Semiconductor Equipment & Materials | 47.4% | 8% | 26 |
| Semiconductors | 43.3% | -2.9% | 64 |
| Software - Application | 62.2% | -8.8% | 192 |
| Software - Infrastructure | 63.4% | -5.9% | 89 |
| Solar | 27.3% | -13.5% | 13 |
| Specialty Business Services | 28.8% | 4.6% | 26 |
| Specialty Chemicals | 26.4% | 5.5% | 46 |
| Specialty Industrial Machinery | 34.5% | 8.6% | 73 |
| Specialty Retail | 37.4% | 1% | 42 |
| Staffing & Employment Services | 34.1% | 4.2% | 23 |
| Steel | 16.9% | 4.1% | 15 |
| Telecom Services | 58.8% | 3.2% | 33 |
| Textile Manufacturing | 18.4% | -4.4% | 4 |
| Thermal Coal | 37.6% | 26.7% | 9 |
| Tobacco | 44.3% | 10.8% | 6 |
| Tools & Accessories | 34% | 7.1% | 11 |
| Travel Services | 51% | 4.7% | 14 |
| Trucking | 49.9% | 6.5% | 12 |
| Uranium | 22.1% | N/A | 4 |
| Utilities - Diversified | 38.7% | 13.1% | 15 |
| Utilities - Regulated Electric | 36.8% | 10.9% | 25 |
| Utilities - Regulated Gas | 41% | 11.4% | 14 |
| Utilities - Regulated Water | 53.4% | 16.4% | 12 |
| Utilities - Renewable | 35% | 6% | 11 |
| Waste Management | 28.4% | 2.5% | 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 92.2%. On the other hand, the average gross profit margin for the Oil & Gas Refining & Marketing industry is around 11.2%, and the average gross profit margin for the Auto Manufacturers industry is around 11.4%.
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% | 27.5% | 279 |
| REIT - Mortgage | 92.2% | 24.5% | 35 |
| Mortgage Finance | 92% | 13.9% | 17 |
| Insurance Brokers | 89.2% | 6.4% | 12 |
| Banks - Diversified | 88.7% | 26% | 6 |
| Biotechnology | 86.3% | -254.7% | 519 |
| Credit Services | 84% | 22.5% | 45 |
| Capital Markets | 83.7% | 11.9% | 33 |
| Asset Management | 81.9% | 23.8% | 73 |
| Insurance - Specialty | 79.4% | 18.6% | 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 | 11.2% | 0.5% | 18 |
| Auto Manufacturers | 11.4% | 7.2% | 17 |
| Farm Products | 11.9% | 5.3% | 18 |
| Paper & Paper Products | 13.2% | -5.2% | 5 |
| Food Distribution | 14.2% | 0.6% | 9 |
| Steel | 16.9% | 4.1% | 15 |
| Engineering & Construction | 17% | 3.1% | 30 |
| Textile Manufacturing | 18.4% | -4.4% | 4 |
| Chemicals | 18.6% | 5.4% | 17 |
| Healthcare Plans | 18.8% | -13.4% | 12 |
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:
- Sales volume: Higher sales volume can increase revenue and gross profit, but it may also increase operating expenses, leading to lower net profit margins.
- Competition: Companies operating in highly competitive markets may have lower gross and net profit margins due to pricing pressures and higher marketing expenses.
- 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.
- Efficiency: Operational efficiency, such as effective cost management, process optimization, and resource allocation, can lead to higher gross and net profit margins.
- 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.
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