Average Small Business Profit Margin by Industry

Average Small Business Profit Margin by Industry in 2024

Published on: January 15, 2024
Last Updated: January 15, 2024

Average Small Business Profit Margin by Industry in 2024

Published on: January 15, 2024
Last Updated: January 15, 2024

Looking at the corporate world from a bird’s eye view offers many unique angles on average small business profit margin by industry.

It’s no secret that running a small business comes with its challenges; however, some industries are evidently more in demand and successful than others.

You can easily see this with certain products and services; some come with obvious profit margins that are either generous or barely scraping by.

This article provides a statistical look at profit margins for small businesses among a wide variety of prominent industries.

Key Statistics

  • The industries with the worst net profit margins at this time are the Hotel and Gaming sectors
  • The average profit margin for a small business is roughly between 7% and 10%
  • Annual revenue for self-employed businesses with zero employees in the U.S. is around $44,000
  • The net margin for the automotive aftermarket sector fell to 2.45% in 2020
  • Manufacturing has a poor net margin of 2%
  • The gross profit margin for the software industry is roughly 72%
  • Before Covid, full-service restaurants had a net margin of about 15%
  • Transportation’s net margin rose from 1.4% to 2.24% due to Covid
  • Average annual small business revenue for women is $50,000 and $75,000 for men
  • The industry with the largest net profit margin is Financial Services at 32.33%

Average Small Business Profit Margin by Industry: Understanding the Basics

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If you aren’t necessarily in tune with how business profits work, it’s important to cover the bases.

There are gross, net, and operating profit margins.

Each comes with its own equation and focal points for how a business handles its profits.

  • Gross Profit Margin: Focuses on surface-level profitability by subtracting the cost of product from sales numbers.
  • Operating Profit Margin: This figure shows what income is left after all business expenses.
  • Net Profit Margin: Subtracts all business expenses, including taxes from sales totals

The statistics listed throughout this article focus on a variety of monetary aspects regarding business, from data on different types of profits, revenue, small business stats, and much more.

1. High and Low Small Business Profit Margins

There are many unique factors that play into the profit margin of a small business.

Although this is true, some industries are known to be more profitable than others, even in the wake of events like Covid-19.

Many industries that maintain relatively high-profit margins tend to sell products and services that come with low costs compared to their sales.

This is one of many deciding factors, and many other industries struggle to hold a positive profit margin regardless of the situation.

In the chart below, you can see how specific industries vary greatly in their average net profit margin:

IndustryNet Profit Margin (Avg.)
Financial Services32.33%
Software (Entertainment)29.04%
Tobacco20.58%
Automotive3.96%
Food Wholesalers0.69%
Hotel and Gaming-28.56%

Evidently, this list could go on forever, but it offers an overview of the stark differences between industries.

It’s always important to highlight that statistics on this topic have drastically changed since the rise of Covid.

While some business sectors have already recovered, it’ll take years for others to return to a healthy profit margin.

(Zippia)

2. Average Profit Margin for Small Businesses

Taking specific industries out of the spotlight, the usual profit margin for the average small business is between 7% and 10%.

This is considered to be a standard, healthy net profit range to maintain.

Of course, many businesses don’t even come close to these numbers, in addition to others that are 20% to 30%.

Most industry professionals would consider 10% to be a sweet spot for nearly any sector.

The figures may seem relatively small, but achieving a 10% net profit margin isn’t as easy as it sounds, especially for certain products and services.

It should be highlighted that the number of employees an organization has plays a role in profit margins as well.

For more clarity, it’s a lot easier to achieve a higher profit margin when you don’t have any employees to pay.

(Zippia)

3. Annual Revenue for the Solo Self Employed

Small businesses come in many shapes and sizes, but a sizable portion of this demographic are merely solo entrepreneurs.

In the corporate world, a small business is an organization that ranges from zero to 500 employees. 

Clearly, larger companies generally boast a larger income, but the average small business brings in about $53,000 annually.

The list below provides a look at the average annual revenue for different types of small businesses.

  • 0 employees: $44,000
  • 1-4 employees: $347,000
  • 5-9 employees: $1.08M
  • 10-19 employees: $2.16M
  • 20-99 employees: $7.12M
  • 100-499: $40.77M

Of course, these numbers are guaranteed to vary from one business to the next, but there’s enough historical data to support that these numbers are pretty consistent.

The annual revenue for solo entrepreneurs highlights how challenging it can be to grow a business and pay your bills at the same time. 

$44,000 per year isn’t enough to survive in many cities throughout the world.

Considering that figure is an average, it’s an experience that’s shared by many people trying to grow a small business.

(Zippia)

4. Automotive Industry Still Hasn’t Recovered

In the wake of Covid-19, there are several industries that come with some unique struggles stemming from the pandemic.

The automotive industry is one of them, as car sales have seen a massive decline since 2020.

In April of 2020, it was reported that car sales had dropped by 45% compared to the year prior.

This much of a decline is a substantial hit, with many small businesses not being able to survive the recovery.

Overall, the automotive aftermarket sector saw its net profit margin fall to 2.45% by quarter two in 2020.

Looking at the situation from another angle, accident claim rates were at a 50-year low as many people stayed at home for extended periods of time. 

Statistics surrounding Covid come with a surprising number of negatives and positives, but there are many small businesses that couldn’t survive through the pandemic.

(CaminoFinancial)

5. Manufacturing Struggles in More Ways Than One

In recent years, the manufacturing industry has been going through several challenges, profits being one of them.

The industry has one of the lowest net profit margins at this time, merely struggling to maintain 2% in this category.

While Covid definitely plays a part in this, changing technologies and manufacturing methods are part of the equation as well.

For example, recent developments in AI over the last two years have led to many uncertainties for manufacturers across the world.

Nevertheless, manufacturing sectors could potentially see better profit margins in the future, but it won’t be until they’re able to bounce back from Covid.

This change will also require a shift in how manufacturers measure profit as its workforce and manufacturing methods are changing as we speak.

(TheKickAssEntrepreneur)

Differences in Data Between Industries

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To get a full scope of the situation around small business profits, it’s essential to look at those who are doing well and those who aren’t.

Many industries, regardless of whether they’re small businesses, are notorious for maintaining higher profit margins.

On the other end of the spectrum, you’ll find industries that are still popular but come with much less demand or simply haven’t recovered from the effects of Covid-19.

The following statistics will reflect on the industries going through highs and lows in revenue, gross, and net profit margins.

6. Gross Profits for the Software Industry

As a reminder, this is focusing on the gross profit, not net, of small businesses in the software industry.

It’s important to note this as this industry has the highest percentage for gross profits, while financial services has the highest percentage for net profits.

Nevertheless, small software businesses, specifically in systems and applications, boast a gross profit margin of 72%, while the net profit is 20%.

Both figures are healthy, to say the least, as software is something that’s always in demand.

It’s also an industry with plenty of room for growth and innovation, giving plenty of space for small organizations to break through the noise.

While these numbers are averages, plenty of small software companies can’t survive due to Covid, competition, or difficulties driving interest in their product.

(Zippia)

7. The Unfortunate Reality of Full-Service Restaurants

Those who pursue their passion in the restaurant business face some pretty daunting statistics.

Even in a healthy economy, it’s extremely difficult to build up a successful restaurant.

Before Covid came along, the average small, full-service restaurant enjoyed a 15% net profit margin.

Most business owners in this sector would be more than happy with this.

Now, even years after the onset of Covid, most small restaurants are struggling to get that profit margin back.

Covid has changed the way people interact with businesses forever.

With consumer behavior changing overnight, restaurants had to adhere to take-out, delivery, and curb-side orders, or many people wouldn’t come by at all.

Then again, this sector’s most current net profit average is at 13%, which continues to grow as we get farther from the beginning of the pandemic.

(CapTerra)

8. The Ups and Downs of Economic Change

It may seem redundant, but Covid-19 was a huge part of the world’s economy’s current state, including profit margins for small businesses.

Some industries benefited from the global needs that arise from the rapid spread of Covid.

For example, the world was extremely reliant on the transportation industry to get the products they needed to weather the lockdowns.

Trucking and shipping routes were more active than ever, which led to a net profit increase from 1.4% to 2.24% from 2019 to 2020.

This is a small jump, but it’s an important industry that upholds society, as it always does.

Due to Covid, there have been several stressors on the transportation industry, from overworked drivers to backed-up shipping routes without enough open space to dock. 

The logistics of this industry were turned upside down on its head, with everyone switching to online orders overnight.

Transportation is another industry, among others, that’s still recovering from a logistics standpoint.

(CaminoFinancial)

9. Small Business Revenue for Men and Women

Looking at other data points, you can find some distinct differences in small business revenue between men and women.

This figure also changes quite a bit based on the number of years a man or woman has been in business.

For a little more clarity, you can find these comparisons in the table below.

# of Years in BusinessAnnual Income for MenAnnual Income for Women
1 year$75,000$50,000
2 years$91,000$59,000
3 years$104,000$68,000

As with any data point that compares men and women, there are many reasons for the varying figures.

From economic to societal factors and more, these are simply averages.

They don’t reflect the situation for every male and female small business owner.

There are plenty of women who do much better than men, and figures are bound to vary significantly based on the industry you look at.

One could argue that based on societal factors, it can be more challenging for women to start certain businesses than men, and vice versa. 

(Zippia)

10. The Resilience of Financial Services

One might ask themselves why financial servies is able to maintain such a healthy net profit margin.

This can be seen in supply and demand.

Regardless of the state of world economics, even in a pandemic, financial services are a constant need.

It’s also helpful to remember that financial services cover many different types of products and services.

Some of these include the following:

  • General banking
  • Financial planning
  • Personal and business wealth management
  • Investments
  • Insurance
  • Credit and lending

These are just a few examples, as there wouldn’t be enough room to list all of the financial services that support daily life across the globe.

Many people who are successful in business will advise new business owners to pick an industry that’s always in demand.

Financial services are something that people need, whether they’re young, old, rich, or poor.

(CapTerra)

A Better Scope of the Situation

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While direct, surface-level statistics can be helpful, they don’t always offer an in-depth understanding of the topic at hand.

Small business profit margins are a discussion that comes with a steep rabbit hole.

For the last few statistics in this article, you’ll get a look at surrounding data points that have their own unique effect on profit margins for small businesses.

11. Many Small Businesses Don’t Survive

Following net profit averages and trends is important for any business owner, as it can offer a look into the future.

There are many challenges that small businesses face that make it harder to stay afloat in the long run.

Data shows that around 25% of all small businesses fail within their first year.

Paying bills and taxes while maintaining good profit levels can feel overwhelming for many people.

On the other hand, roughly 50% of organizations in this category make it to the five-year mark.

Selling a product or service isn’t the hard part; the challenge lies in adapting to changing needs on a constant basis.

Without a profitable net margin, businesses will inevitably run themselves into the ground if they aren’t able to shift the course of their situation.

(FreshBooks)

12. Reaching Profitability As a New Business

Small businesses take a while to get off the ground, especially if you’re doing it all on your own.

Regardless of the industry, most new businesses take anywhere from one to two years before they see any kind of profitability.

Breaking this down between each business, you’re bound to come across some who found overnight success, while others don’t even make it to a year.

There’s also the factor that some business owners don’t set the cost of their products and services correctly.

If there isn’t a sustainable markup on the product, you won’t be able to compensate for the many associated costs of running a business.

It sounds simple, but it’s easier said than done.

Not to mention the many unique challenges that come with the industries throughout the world and their rules, laws, and regulations.

(FreshBooks)

13. Retail Took a Massive Hit

One of the industries that felt demolished by the Covid lockdowns was the retail business.

Although there’s plenty of online shopping in this space, there’s still a significant portion that relies on foot traffic in-store.

The damage didn’t take long, as the retail industry saw a drop in operating income of 58% in the first quarter of 2020.

It’s important to highlight that Walmart is a significant portion of this figure, as the organizaiton was allowed to stay open for people to buy their base necessities.

If you were to take Walmart out of the equation, that operating income percentage drops all the way to -71%.

You can see how this would be hard to bounce back from, and fixing it won’t be a quick process.

It’s a perfect example of certain industries having unique vulnerabilities based on specific economic factors.

(CaminoFinancial)

14. Failure Rate for Small Businesses

When you take a look at data surrounding failure rates, these figures change quite a bit depending on how long an organization has been in business.

For the one-year mark, the average failure rate for a new business is 22%. 

This is pretty steep, but it’s partly why the first year in business can be the hardest.

The table below offers more data on varying failure rates over a particular length of time.

Years in BusinessFailure Rate 
1 year21.9%
2 years31.8%
3 years39.7%
4 years49.7%
5 years50%

As you can see, there’s a trend with failure rates increasing the longer an organization stays in business.

It can be very hard to find success on a yearly basis while focusing on growth and maintenance at the same time.

Around 82% of small organizations fail due to one or more of the following well-known complications:

  • Improper inventory management
  • Overspending
  • Increasing debt
  • Minimal cash reserves
  • Not working with an accountant

It can be pretty easy to struggle with some of these points, especially if it’s your first time in business.

Overall, it can feel rare for many small businesses to make it in the long term.

(Zippia)

15. The Few That Succeed

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Although many points in this article focus on the struggles of small businesses, you can’t ignore the percentage that finds substantial success.

Of course, this isn’t the majority when it comes to this topic.

Only one in 20 small businesses eventually surpass the $1 million mark in revenue.

This comes out to just 5% of small organizations, and for most of them, it takes years of struggle before they reach that point.

The truth is that this accomplishment is unlikely for many types of businesses. 

For organizations that offer a product or service with a commonly high price tag, their experience may be different.

As always, several factors play into surpassing $1 million in revenue, but a demographic of small business owners continues to defy the odds.

(Zippia)

Final Thoughts

The statistics on small business profit margins may feel disconcerting, but it’s simply the truth about building a business in the modern world.

It’s a competitive landscape that comes with a long list of inevitable challenges that can’t be avoided.

Part of the process is going through that learning curve, and there’s a lot of failure before success ever sees the light of day.

In summary, this article provides a realistic take on average small business profit margin by industry and many other relevant surrounding data points.

Sources

ZippiaCamino FinancialThe Kickassentr Epreneur
Fresh BooksCapterra

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Written by Kelly Indah

I’m a statistics researcher here at EarthWeb with a special interest in privacy, tech, diversity, equality and human rights. I have a master’s degree in Computer Science and I have my Certified Information Systems Security Professional (CISSP) certification.