Profit Margin Benchmarks by Industry: Where Do You Stand?

Profit margin benchmarks tell you what share of revenue companies in an industry keep as profit. This page puts two dated, primary datasets side by side: Aswath Damodaran's margins for US listed companies at NYU Stern, and the IRS Statistics of Income tables for nonfarm sole proprietorships. Then it shows, with worked numbers, how to adjust your own figures so the comparison means something.

Use the tables to ask better questions about pricing and overhead, not to grade yourself. A 40% sole-proprietor margin and a 7% corporate net margin can describe equally healthy businesses.

What are average profit margins by industry?

For US listed companies, net margins run from about 1% to 25% in the industries most small service and trade businesses compare themselves with, and average 9.74% across the whole market. The table shows three margins for each industry, because they answer different questions: gross margin (after direct costs), operating margin (after all operating costs, before interest and tax) and net margin (after everything, including tax).

Source: Aswath Damodaran, NYU Stern School of Business, Margins by Sector (US), data as of January 2026, accessed October 27, 2026. Operating margin is the dataset's pre-tax unadjusted operating margin.

Three things to read from it:

• Read across a row, not down a column. Software keeps 71.72% after direct costs but 25.49% after everything else. The gap is the cost of sales, development and administration.
• Gross margins are not comparable between industries. Companies decide differently what counts as "cost of sales". Operating margin is the steadier figure to compare.
• Small samples swing. Advertising's slightly negative net margin comes from 52 companies. One large loss-maker moves the average.

The sample is every US publicly traded company with a market price above zero. Damodaran notes that unlisted and privately owned businesses are not included (Data Update 1 for 2026). The data is refreshed in the first two weeks of each year.

How do small businesses compare?

Small, owner-run businesses report much higher margins in professional services and lower ones in retail and restaurants. The IRS publishes business receipts and net income for every nonfarm sole proprietorship (Schedule C) by industry. Dividing one by the other gives an industry-wide margin:

Source: IRS Statistics of Income, Nonfarm Sole Proprietorship Statistics, Table 1, tax year 2023 (published March 2026), accessed October 27, 2026. Margins and averages are our calculation from the table's "business receipts" and "net income less deficit" columns, which include businesses with losses. Figures are IRS sample estimates.

Two details explain most of the gap with the listed-company table:

1. The owner's pay is still inside the profit. A sole proprietor cannot pay themselves a deductible salary, so Schedule C "net income" is what the owner lives on. A listed company has already paid every manager and employee before it reports profit.
2. Net income here is before income tax. Sole proprietors pay income tax personally. The Stern net margin is after corporate tax, so the fairer Stern comparison is the operating margin column.

Not every row flips the same way. Small restaurants (3.4%) and retailers (4.1%) earn less on each dollar than listed chains (9.37% and 5.61% net), even before paying their owners. Scale buys purchasing power that a single shop does not have. Also note that 31% of all sole proprietorship returns in the IRS table reported no net income.

How do you compare your own margin fairly?

Convert your figures to the same definition as the benchmark before you compare. These steps work for a sole proprietor or a small company:

1. Use revenue before sales tax or VAT. Tax you collect belongs to the tax authority.
2. Work out gross margin: revenue minus direct job costs (subcontractors, materials, client-specific software), divided by revenue.
3. Deduct a market salary for the owner if your books do not already pay one. Use what you would pay someone else to do your role.
4. Work out pre-tax operating margin: revenue minus all costs, including that salary, divided by revenue. Compare this with the Stern operating margin.
5. Compare with the IRS sole-proprietor row only before the salary adjustment, because that is how the IRS figure is built.

Worked example 1: a solo consultant. Inputs: $120,000 of fees in a year, $18,000 of business expenses, and an assumed $85,000 market salary for the consultant's role.

• Unadjusted margin: ($120,000 - $18,000) ÷ $120,000 = 85.0%. That beats the IRS consulting row (50.2%) comfortably.
• Adjusted pre-tax margin: ($120,000 - $18,000 - $85,000) ÷ $120,000 = $17,000 ÷ $120,000 = 14.2%. That is a little above the Stern operating margin for Business & Consumer Services (12.27%).

Both statements are true. The first says the practice pays its owner well. The second says that, as a business, it earns a normal return on top of that pay.

Worked example 2: a six-person marketing agency. Inputs: $600,000 of revenue, $240,000 of freelancer and media costs billed to clients, and $300,000 of overhead including all salaries.

• Gross margin: ($600,000 - $240,000) ÷ $600,000 = 60.0%, far above Stern's Advertising gross margin of 36.24%. Do not celebrate yet; the agency left salaried staff out of direct costs and many listed agencies do not.
• Operating margin: ($600,000 - $240,000 - $300,000) ÷ $600,000 = 10.0%, almost exactly Advertising's 10.07%. This is the comparison that holds up.

To check individual quotes and invoices, the profit margin calculator returns margin and markup and the price needed to hit a target margin. For a full method for agencies and consultants, see how to calculate profit margin for service businesses.

Which benchmark row should you use?

Pick the row that matches how your business earns money, then compare the margin that matches your accounts:

If no row fits, use the "Total market" line (12.82% operating, 9.74% net) only as a sanity check, never as a target.

What should you change if you are below the benchmark?

Start with price, because it is the only lever that adds margin without cutting the work. A small rate rise changes margin more than most cost cuts.

Worked example 3: an 8% price rise. Inputs: $200,000 of revenue and $170,000 of costs (a 15.0% margin). $110,000 of the costs are fixed; $60,000 rise and fall with the amount of work.

• Same volume at prices 8% higher: revenue $216,000, costs $170,000, profit $46,000, margin 21.3%.
• Break-even volume: profit stays at today's $30,000 as long as $156,000 × volume - $110,000 ≥ $30,000, so volume can fall to about 89.7% of today's. You could lose roughly 10% of your work and still make the same profit with fewer hours.

Then work through the other levers in order:

• Unpriced scope. Every unbilled revision round or extra site visit is cost with no revenue. Put scope changes on their own invoice line.
• Discounts. A 10% discount on a job with a 40% margin removes a quarter of its profit. Model early-payment terms first with the discount calculator.
• Overhead you no longer use. Software seats, office space and subscriptions that grew with a busier year.
• Slow payment. Late invoices do not change your margin on paper, but they cost you borrowing, fees and time. See how to handle unpaid invoices.

If you decide to raise rates, how to raise freelance rates covers the client conversation.

Where does your invoicing data fit in?

Margin starts with accurate revenue per client and per job, and your invoices are that record. InvoiceQuickly does not calculate profit margins or produce profit and loss reports. Its dashboard shows all-time totals kept separately per currency: payments received, outstanding balance, invoice count and client count. On the Pro plan, you can export your invoices to CSV and join them with your cost records in a spreadsheet. Filter out rows numbered EST- (estimates) and CN- (credit notes) first, because the export includes them alongside invoices.

When are industry benchmarks the wrong yardstick?

• In your first year or two. Startup costs and uneven client flow distort any single-year margin. Track the direction across quarters instead.
• When one client is most of your revenue. Your margin reflects that client's rates, not your industry.
• When your owner pay is unclear. If you draw irregularly from the business account, fix the bookkeeping before benchmarking. The answer depends entirely on that number.
• Outside the US. Both datasets here are US-only. Damodaran publishes separate regional datasets, and your national statistics office may publish small-business accounts by industry.
• For a decision about one job. Industry averages say nothing about whether a particular quote is profitable. Price each job from its own costs and target margin.

Frequently asked questions

What is a good profit margin for a small business?

There is no single figure, because it depends on whether the owner's pay has been deducted. Across all US nonfarm sole proprietorships, net income was 18.3% of receipts in tax year 2023, before paying the owner. After deducting a market salary for yourself, a pre-tax margin near your industry's operating margin (12.82% across all US listed companies) is a reasonable sign of a sound business.

What is the average net profit margin by industry?

For US listed companies in January 2026, the average net margin was 9.74%. Examples: software 25.49%, restaurants 9.37%, business and consumer services 7.03%, engineering and construction 5.94%, computer services 4.45% and healthcare support services 1.25% (NYU Stern, Damodaran).

Which industries have the highest profit margins?

In the January 2026 Stern data, the highest net margins among US listed industries were semiconductors (30.45%), entertainment software (29.93%), money-center banks (28.89%) and precious metals (28.59%). Industries with heavy fixed assets or thin pricing power, such as healthcare support services and grocery retail, sit near 1%.

Why do sole proprietors show higher margins than companies?

Because a sole proprietor's net income still includes the owner's pay and has not been taxed yet. A consultant who keeps $102,000 of $120,000 in fees shows an 85% margin on Schedule C. After an $85,000 market salary, the business margin is 14.2%.

What is the difference between gross, operating and net margin?

Gross margin subtracts only direct costs of sales. Operating margin also subtracts overhead such as salaries, rent and software, before interest and tax. Net margin subtracts everything, including interest and income tax. Software companies show the gap clearly: 71.72% gross, 32.98% operating and 25.49% net in the Stern data.

Is a 10% net profit margin good?

For a US listed company, 10% is close to the 9.74% market average and above average for construction, retail and computer services. For a sole proprietor, 10% of receipts left before the owner's pay would usually be low, because that 10% is also the owner's income.

How often is this benchmark data updated?

Damodaran updates the NYU Stern datasets in the first two weeks of each year; the figures here are as of January 2026. The IRS publishes sole proprietorship statistics with a lag of over two years; tax year 2023 was released in March 2026.

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Last reviewed: October 27, 2026. Figures come from NYU Stern (January 2026) and IRS Statistics of Income (tax year 2023). Both cover US businesses only. This is general information, not financial or tax advice.

Read more on healthy profit margins, or browse the InvoiceQuickly blog for pricing and invoicing guides.