The question "what is a good profit margin?" has no universal answer. A 3% net margin would be catastrophic for a software company but is respectable in grocery retail. Comparing your margins to your own industry is the only meaningful benchmark. Here are gross and net margin ranges for the most common business categories.
How to Calculate Your Profit Margin
Gross Profit Margin = ((Revenue - Cost of Goods Sold) / Revenue) x 100. This shows profitability before operating expenses. Net Profit Margin = (Net Income / Revenue) x 100. Net income is what remains after all costs including salaries, rent, taxes, and interest. Use the margin calculator to find either figure for your business instantly.
Retail and E-Commerce
Gross margins in retail vary widely by category. Grocery and food retail: 25% to 35% gross margin, but 1% to 3% net margin due to extremely high volume and thin operating leverage. General merchandise and discount retail: 30% to 40% gross, 3% to 6% net. Clothing and apparel: 40% to 60% gross, 5% to 15% net. Luxury goods: 60% to 75% gross, 15% to 25% net. E-commerce adds fulfillment and return costs that compress margins compared to brick-and-mortar in the same category.
Software and Technology
Software-as-a-Service (SaaS) businesses have some of the highest margins of any industry because the cost of delivering an additional software license is near zero. Gross margins of 70% to 85% are typical for mature SaaS products. Net margins vary widely depending on growth stage: early-stage SaaS companies often run at negative net margins by choice as they invest in customer acquisition; mature profitable SaaS businesses commonly achieve 20% to 35% net margins. Hardware and consumer electronics companies earn far lower margins: 30% to 45% gross, 5% to 15% net.
Restaurants and Food Service
Restaurants operate on notoriously tight margins. Food cost (cost of ingredients as a percentage of food revenue) typically runs 28% to 35%, meaning gross margin on food is 65% to 72%. But after rent, labor, utilities, and waste, net profit margins are 3% to 9% for a healthy full-service restaurant. Fast food and quick-service restaurants tend to run slightly higher net margins (6% to 12%) due to lower labor ratios and higher volume. Bars and beverage-focused venues earn gross margins of 70% to 80% on alcohol, which is why profitable restaurants push beverage programs aggressively.
Manufacturing
Gross margins in manufacturing depend heavily on the product category and level of automation. Industrial manufacturers: 25% to 40% gross, 5% to 12% net. Automotive: 15% to 20% gross, 3% to 8% net. Pharmaceutical manufacturing: 60% to 80% gross (due to IP protection), 15% to 30% net. Consumer packaged goods (food, household products): 35% to 50% gross, 8% to 15% net. Custom or job-shop manufacturing with high labor content typically targets 20% to 30% gross margin as a minimum to remain viable.
Professional Services
Service businesses have low cost of goods sold (often limited to direct labor), so gross margins are very high, but operating costs compress net margins. Law firms: 30% to 50% net margin for partners, though individual attorney utilization rates and billing rates vary enormously. Consulting firms: 15% to 30% net. Accounting and tax practices: 20% to 40% net. Marketing and advertising agencies: 10% to 20% net. Staffing and recruitment agencies: 3% to 8% net, because the majority of revenue passes through to placed employees as salary.
Construction and Trades
Construction companies typically operate on gross margins of 15% to 25% and net margins of 2% to 6%. Specialty trades (electrical, plumbing, HVAC) often achieve higher gross margins of 30% to 50% because of licensing barriers and skilled labor scarcity, with net margins of 8% to 15%. Home services businesses (cleaning, landscaping, pest control) can achieve 15% to 30% net margins when efficiently managed with low overhead.
What to Do If Your Margin Is Below Benchmark
Start by separating the gross margin problem from the operating expense problem. A low gross margin means your pricing or product costs need attention. Calculate the exact markup needed to hit your target gross margin: Selling Price = Cost / (1 - Target Margin). If your net margin is low but gross margin is healthy, the issue is operating expenses -- rent, payroll, or overhead that is too high relative to revenue. Use the margin calculator to model different pricing scenarios and find the margin improvement that makes your business sustainable.