What is a good profit margin?

First check the definition

Is 10%, 20% or 50% a good margin?

The percentage alone is not enough. A 50% gross margin leaves half of sales available for costs below gross profit; it does not mean the owner keeps half of revenue. A 10% net margin is a different measure altogether.

Gross profit deducts cost of sales from revenue. Operating profit also deducts operating expenses. Net profit reflects the bottom line after interest, income tax and other applicable items. Divide the relevant profit subtotal by revenue to obtain that margin.

Definition reference: SEC guide to financial statements. Follow the actual income statement's classifications when applying these definitions.

Compare gross with gross, operating with operating, and net with net. The main product-pricing calculator does not automatically include the overhead, interest and tax needed to calculate company-wide net profit.

One business, three answers

A 45% gross margin can still leave only 4% net

In this illustrative period, revenue is $100,000, cost of goods sold is $55,000, other operating expenses are $35,000, and interest plus income tax total $6,000.

The gross margin might look generous on a pricing worksheet, but the remaining expenses absorb most of it. This is why a product margin should not be compared with a published net-margin figure. These numbers explain the arithmetic; they are not a recommended business model.

Dated reference data

Profit margins by industry

The table below reproduces selected US public-company sector figures from Aswath Damodaran at NYU Stern. The source's analysis date is January 2026; it is not a September 2026 measurement.

Source: NYU Stern margins by sector. Sector figures are reference points, not minimums or targets for small and private businesses.

Notice how apparel's gross and net margins differ. Choosing only the larger column would answer the wrong question. The number of firms also matters: these rows represent different-sized samples, and a sector figure does not show the full spread of individual company results.

A local restaurant, an early-stage software company and a large listed chain can have different economics even when a broad industry label sounds similar. Before treating a figure as a goal, check what the source includes, who it represents and when it was measured.

Start with your budget

How to set a profit-margin target that fits your business

Instead of selecting a round percentage first, work backward from the expenses the chosen profit subtotal must still cover. Keep the revenue forecast, costs and desired profit in the same reporting period.

For example, suppose a simplified budget forecasts $200,000 of sales, $60,000 of expenses below gross profit, and $20,000 of desired profit after those expenses. Required gross profit is $80,000, or a 40% gross margin. That leaves a maximum of $120,000 for cost of goods sold.

This is a planning calculation, not an industry recommendation. Include the relevant overhead and estimated interest and tax in the remaining-expense budget, avoid counting any cost twice, and revisit the forecast when sales or costs change.

• Match the scope. An individual item, a product line and the whole company are not interchangeable.
• Use a consistent period. Compare the same months or full years, especially when sales are seasonal.
• Normalize the inputs carefully. Review returns, discounts, owner compensation and unusual items. Keep any adjusted result separate from the reported result.
• Compare your own trend. A consistent calculation across several periods can explain more than a single broad industry figure.

Look beyond one percentage

A higher margin does not always mean more profit

Sales of $60,000 at a 20% net margin produce $12,000 of net profit. Sales of $120,000 at a 15% net margin produce $18,000. The second business has a lower percentage but more profit dollars. Neither comparison alone tells you how much capital, work or risk was required.

Also review cash flow: the SEC distinguishes earnings from cash generated and used. A profit-margin result is not evidence that customers have paid or that the business has enough cash for its obligations.

To improve the result, identify the cause first. Pricing, product mix, discounts, direct costs and overhead affect different parts of the income statement. Test a change against both expected profit dollars and sales volume rather than assuming that the highest possible percentage is always best.