Average Profit Margin by Industry (2026 Data + Benchmarks)
Average profit margin by industry for 2026: net margin benchmarks from NYU Stern data, what counts as a good margin for small firms, and how to compare yours.
Quick answer: The average profit margin across all US industries was about 9.7% (net margin) in Professor Aswath Damodaran's January 2026 dataset at NYU Stern, or about 8.6% excluding financial firms. Industry averages range from roughly 1% for grocery retail to over 25% for software and semiconductors, so always benchmark against your own sector.
Knowing the average profit margin by industry helps you answer a simple question: is my business making as much money as it should on each dollar of sales? This guide explains the main margin types, shows 2026 benchmarks for common sectors, walks through a worked example and lists the mistakes owners make when they compare themselves with industry data.
What is profit margin?
Profit margin is profit expressed as a percentage of revenue. It shows how many cents you keep from each dollar of sales after costs. There are three versions you will see in benchmark tables:
- Gross margin: (revenue minus cost of goods sold) divided by revenue. It covers only the direct costs of what you sell, such as materials and direct labor. See our guide to cost of goods sold for what belongs in that line.
- Operating margin: operating income divided by revenue. It subtracts overhead such as rent, software, marketing and salaries. Our operating income guide explains the calculation.
- Net margin: net income divided by revenue, after interest and taxes. This is the "bottom line" most people mean by profit margin.
If you need the formulas step by step, read how to calculate profit margin. If you price by adding a percentage to cost, read markup vs margin first, because a 50% markup is only a 33% margin.
Average profit margin by industry in 2026
The most widely cited free source is the margins dataset maintained by Professor Aswath Damodaran at NYU Stern School of Business. It is updated each January and covers thousands of US-listed companies grouped into about 90 industries. The figures below are net margins from the January 2026 US margins table. Check the live table for the full list and for gross and operating margins, because the dataset is revised over time.
| Industry (Damodaran category) | Net margin, January 2026 | Margin profile |
|---|---|---|
| Semiconductors | 30.45% | Very high |
| Tobacco | 26.65% | Very high |
| Software (system and application) | 25.49% | Very high |
| Hotel and gaming | 10.38% | Average to above |
| Total market | 9.74% | Benchmark |
| Restaurant and dining | 9.37% | Average |
| Total market excluding financials | 8.56% | Benchmark |
| Trucking | 3.79% | Low |
| Retail (grocery and food) | 1.32% | Very low |
| Auto and truck | 1.29% | Very low |
Two cautions. First, these are large public companies. A neighborhood restaurant does not have the purchasing power of a national chain, so its margin may be lower. Second, the averages are aggregates for one year. A sector with a bad year, or one giant company, can move the number a lot.
What is a good profit margin for a small business?
A good margin is one that beats your industry peers, pays you a fair salary and leaves enough to reinvest and survive a slow quarter. Many advisers use these rough bands for net margin, which are a rule of thumb rather than a standard:
- Below 5%: thin. One price increase from a supplier or one unpaid invoice can push you into a loss.
- 5% to 10%: typical for many product and trade businesses.
- Above 10%: healthy, and common for service businesses with low material costs.
- Above 20%: strong, usually seen in specialist services, software and businesses with pricing power.
Service businesses (consulting, bookkeeping, design, IT support) often show high gross margins because their main cost is time. The catch is that the owner's time is the product. If you do not pay yourself a market salary before calculating profit, your margin looks better than it really is.
How do margins differ by small business type?
The structure of a business predicts its margin more reliably than its size. This table summarizes the usual drivers. It is a qualitative guide, not survey data.
| Business type | Main cost drivers | Typical margin pattern |
|---|---|---|
| Professional services (consulting, accounting, legal) | Labor, insurance, software | High gross margin, net margin depends on utilization |
| Trades (plumbing, electrical, HVAC) | Labor, materials, vehicles, insurance | Moderate, improved by materials markup and service call fees |
| Restaurants and food | Food cost, labor, rent | Thin to moderate, sensitive to waste and rent |
| Retail and e-commerce | Inventory, shipping, ads, payment fees | Low to moderate net margin, high volume needed |
| Transport and logistics | Fuel, equipment, insurance, maintenance | Low, very sensitive to fuel and rates |
| Software and digital products | Development, hosting, marketing | High once fixed costs are covered |
Worked example: comparing your margin with the industry average
Maria runs a small catering company. Last year her profit and loss statement showed:
| Line | Amount |
|---|---|
| Revenue | $420,000 |
| Food and direct staff (COGS) | $231,000 |
| Gross profit | $189,000 (45.0% gross margin) |
| Rent, van, insurance, marketing, software | $118,000 |
| Owner salary (market rate) | $52,000 |
| Net profit before tax | $19,000 (4.5% net margin) |
The restaurant and dining average in the January 2026 data is about 9.4%. Maria is at roughly half that. Before panicking, she checks two things. First, she included a market salary for herself, which a public-company comparison effectively does too. Second, she looks for leaks. Her invoices show she has not charged for delivery or for setup time on 30% of events. Adding a $150 delivery and setup line to 120 events a year would bring in $18,000, almost all of it profit, lifting net margin to about 8.4% (37,000 divided by 438,000).
The lesson: closing billing gaps often moves margin faster than cutting costs. Make sure every chargeable item appears on the invoice. Our free invoice generator lets you add separate lines for delivery, setup and service fees so nothing is forgotten.
How to calculate and track your profit margin: step by step
- Get clean numbers. Use your accounting software or a simple bookkeeping system to produce a profit and loss statement for the last 12 months.
- Separate direct costs from overhead. Put materials and direct labor in COGS. Put rent, subscriptions and admin in operating expenses.
- Add a fair owner salary. If you take draws instead of salary, subtract an estimated market salary before calculating net margin.
- Calculate gross, operating and net margin. Divide each profit figure by revenue.
- Pick the right benchmark. Find the closest industry in the Damodaran table or an industry association report.
- Find the gap and its cause. If gross margin is low, look at pricing and direct costs. If gross margin is fine but net is low, look at overhead.
- Track monthly. One year's figure hides seasonality. A monthly margin trend shows problems early.
How to improve a low profit margin
There are only two levers: earn more per sale or spend less per sale. In practice the revenue side is usually more powerful for small businesses.
- Review prices. Many small businesses have not raised prices in years. Our guide on how to raise prices covers notice periods and wording.
- Price from cost and value. Use product pricing methods that start from full cost, including overhead, rather than copying competitors.
- Bill everything. Travel time, rush work, extra revisions, materials markup and cancellation fees all belong on the invoice when your terms allow them.
- Cut low-margin work. Rank products or clients by gross margin and drop or reprice the bottom ones.
- Know your break-even. The break-even point tells you how much revenue covers fixed costs, which makes overhead decisions easier.
- Forecast. A simple sales forecast shows whether planned costs fit expected revenue.
Common mistakes when comparing profit margins
- Mixing up markup and margin. A 100% markup is a 50% margin, not 100%.
- Comparing gross with net. Make sure the benchmark and your figure measure the same thing.
- Ignoring owner pay. A sole owner earning nothing can show a 30% margin that disappears once a fair salary is included.
- Using the wrong industry. A mobile app studio is not "software (system and application)" at the scale of a global vendor. Use the closest match and treat it as a range.
- Using cash in the bank as profit. Cash and profit differ. Unpaid invoices, inventory and loan repayments all affect cash without matching profit.
- Looking at one year only. Margins move with the economy and with one-off costs. Use a two or three year average.
Why gross margin benchmarks look so different from net margin
Many owners are surprised that their gross margin looks excellent while their net margin looks poor. The gap is overhead. A web design studio may keep 80 cents of every dollar after direct contractor costs, but rent, software subscriptions, insurance, marketing and the owner's salary can absorb most of that. A grocery store is the opposite: a gross margin of roughly a quarter of sales, but very little left after staff, rent and shrinkage.
| Margin type | What it answers | Use it for |
|---|---|---|
| Gross margin | Does each sale cover its direct costs? | Pricing, product mix, supplier negotiations |
| Operating margin | Does the core business cover overhead? | Hiring, rent and software decisions |
| Net margin | What is left after everything, including interest and tax? | Overall health, lender and buyer comparisons |
| EBITDA margin | Cash-like operating profit before financing and depreciation | Valuing a business, comparing companies with different debt |
If you are preparing to sell or value your company, buyers often look at EBITDA rather than net margin, because it strips out the owner's financing choices. Our guide on how to value a small business explains how margins feed into valuation multiples.
How do profit margins change as a business grows?
Margins usually follow a pattern. In the first year, net margin is often negative because startup costs and marketing come before steady revenue. As sales grow, fixed costs are spread over more revenue and margin improves. This is called operating leverage. Later, margin can dip again when you hire managers, move to bigger premises or enter new markets.
- Launch stage: focus on gross margin. If each sale is not profitable before overhead, growth only makes losses bigger.
- Growth stage: watch operating margin. Overhead should grow more slowly than revenue.
- Mature stage: protect net margin with regular price reviews, cost control and tight collections.
Unpaid invoices quietly erode margin too. A sale that is never collected becomes a bad debt write-off, which reduces profit dollar for dollar. Clear payment terms and prompt invoicing protect the margin you worked to earn.
Where to find more industry margin data
Besides the NYU Stern data, useful sources include industry trade associations, your bank or accountant (many have benchmarking tools based on client data), and the US Census Bureau's economic surveys for revenue and cost structure by industry. When you start a new venture, combine margin benchmarks with a realistic startup cost estimate to see how long it will take to earn back your investment.
Use the average profit margin by industry as a reference point, not a verdict. Calculate your own margins every month, compare them with the closest sector, and fix billing gaps before cutting costs. When you invoice, our invoice generator is free, needs no sign-up and downloads a clean PDF built right in your browser, so every fee you are owed makes it onto the bill.
Frequently asked questions
What is a good profit margin for a small business?
There is no single number, because margins depend on the industry, the business model and whether you pay yourself a salary before calculating profit. As a rough rule, many owners treat a net margin under 5% as thin, 5% to 10% as average and above 10% as healthy, but a grocery store and a software company live in completely different ranges. Compare yourself with businesses that sell the same thing in the same way.
Which industry has the highest profit margin?
In large public-company data, sectors built on intellectual property and low marginal costs tend to lead. Professor Aswath Damodaran's January 2026 US dataset shows semiconductors, tobacco and system and application software with net margins above 25%. For small businesses, high-margin categories are usually service businesses with low material costs, such as consulting, bookkeeping, software and specialist professional services.
Which industries have the lowest profit margins?
High-volume, low-price businesses usually have the thinnest margins. In the January 2026 Damodaran data, grocery and food retail and auto and truck manufacturing both sit near 1% net margin, and trucking is under 4%. These businesses make money through volume and fast inventory turnover, so a small change in costs or prices can wipe out profit.
Is gross margin or net margin more important?
Both matter, for different decisions. Gross margin tells you whether each sale covers its direct costs and is the right number for pricing and product decisions. Net margin tells you whether the whole business, including rent, software, insurance, interest and taxes, actually makes money. A business can have a strong gross margin and still lose money if overhead is too high for its sales volume.
Why are small business margins different from public company averages?
Public company data covers large firms with scale, purchasing power and professional management, and it reports profit after paying all employees, including executives. A small business often has higher unit costs, and many owners do not pay themselves a market salary, which inflates reported profit. Adjust your profit for a fair owner salary before comparing it with industry benchmarks.
How often are industry margin benchmarks updated?
Damodaran's datasets at NYU Stern are usually refreshed each January using the prior year's financial data. Industry associations and benchmarking services publish on their own schedules, often annually. Because one unusual year can skew a sector, look at two or three years of data when you set targets, and focus on the trend of your own margins over time.
Does a high margin always mean a better business?
No. A business with a 40% margin on very low sales can earn less money than one with a 5% margin on large, steady volume. Margin also has to be weighed against risk, the capital required, how quickly customers pay and how much of the owner's time the business consumes. Use margin alongside revenue, cash flow and return on investment.
How can I increase my profit margin quickly?
The fastest levers are usually pricing and billing discipline: raise prices on underpriced work, stop discounting by default, invoice every billable hour and expense, and charge for rush jobs and extra revisions. On the cost side, renegotiate supplier prices, cut unused subscriptions and drop products or clients that lose money. Price changes reach the bottom line almost one for one, so they often beat cost cutting.
Invoice Creator Editorial Team
Guides on invoicing, cash flow and small-business finance from Invoice Creator, operated by Next Software Development Company. Content is reviewed for accuracy against the fields our own invoice generator produces.
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