Average Profit Margin by Industry: 2026 Benchmarks

Two businesses can generate the same revenue and end up with very different profits. A software company may retain a substantial share of its sales, while a retailer may spend much of its revenue purchasing inventory, paying employees, and covering operating expenses.

These differences explain why the average profit margin by industry is useful for small business owners. Industry benchmarks provide context for evaluating financial performance, reviewing pricing decisions, and identifying opportunities to improve profitability.

However, an industry average is not a target that every business should expect to reach. Profit margins vary according to operating costs, business size, competition, pricing power, and the way a company earns revenue.

This guide examines selected U.S. industry benchmarks published in January 2026, explains the difference between gross and net profit margins, and shows how to use the figures to make more informed business decisions.

What Is the Average Profit Margin by Industry?

The average profit margin by industry measures profitability across businesses operating in a particular sector. It helps business owners understand how much revenue companies retain after accounting for specific costs.

Three measures are particularly useful when comparing profitability:

• Gross profit margin: The percentage of revenue remaining after subtracting the cost of goods sold or applicable direct costs.
• Operating profit margin: The percentage of revenue represented by operating income, based on the company’s reported operating results.
• Net profit margin: The percentage of revenue that remains as net income after the expenses included in that measure have been deducted.

These figures can differ substantially for the same business. A retailer might have a healthy gross margin but retain considerably less after paying rent, wages, marketing expenses, interest, and taxes.

Industry benchmarks help put those results into context. They can also reveal whether a business operates in a sector where high sales volumes and relatively thin margins are common.

For a broader explanation of profit margin calculations and how to evaluate overall profitability, read our guide to what is a good profit margin for a small business.

Average Profit Margin by Industry: U.S. Benchmarks for 2026

The following figures come from Aswath Damodaran’s NYU Stern School of Business dataset, Margins by Sector (US), dated January 2026.

The dataset covers publicly traded U.S. companies. It is useful for comparing industry economics, but it should not be described as a direct survey of independent small businesses.

Industry	Gross profit margin	Net profit margin
Software (system and application)	71.72%	25.49%
Business and consumer services	33.38%	7.03%
Restaurant and dining	32.24%	9.37%
General retail	33.18%	5.61%
Grocery and food retail	26.31%	1.32%
Engineering and construction	15.46%	5.94%
Air transport	24.79%	2.51%
Apparel	56.88%	3.85%

Source: NYU Stern School of Business — Margins by Sector (US). Data as of January 2026.

These are selected industry categories, not a complete ranking of every U.S. industry. The air transport figures specifically represent the source’s air transport category, not the entire transportation sector. The source also reports the number of companies included in each category, which varies by industry.

The differences between gross and net margins are particularly important. Apparel companies in this dataset report a gross margin of 56.88% but a net margin of 3.85%. Grocery and food retailers report a gross margin of 26.31% and a net margin of 1.32%.

A higher gross margin therefore does not automatically mean a business will retain more of its revenue as final profit.

Profit Margins by Industry: What the Numbers Mean

1. Software and Technology

Software businesses can achieve high gross margins because developing a product may require substantial upfront investment, while serving additional customers does not always require production costs to increase at the same rate as revenue.

In the selected dataset, software companies in the system and application category report a gross margin of 71.72% and a net margin of 25.49%.

These figures do not mean every software startup should expect a net margin above 25%. Product development, marketing, customer acquisition, cloud infrastructure, and support can significantly affect profitability.

For small technology businesses, useful measures include recurring revenue, customer acquisition cost, customer retention, and the expense of maintaining and improving the product.

2. Business and Consumer Services

The business and consumer services category reports a gross margin of 33.38% and a net margin of 7.03%.

This is a broad category rather than a precise benchmark for every consulting firm, marketing agency, or professional service provider. Different services have different staffing requirements and operating costs.

Labor utilization is particularly important for service businesses. A company may charge competitive rates but lose profitability when projects take longer than expected or employees spend too much time on unbillable work.

Clear project scopes, accurate cost estimates, appropriate pricing, and efficient scheduling can help service providers protect their margins.

3. Restaurants and Dining

The selected restaurant and dining category reports a gross margin of 32.24% and a net margin of 9.37%.

Restaurant profitability depends on food costs, staffing, rent, utilities, waste, menu prices, and customer traffic. The financial results of a publicly traded restaurant group may differ considerably from those of an independent neighborhood restaurant.

Restaurant owners should monitor ingredient costs, labor scheduling, food waste, average order value, and sales trends. Reviewing these figures regularly can help identify problems before they have a significant effect on profitability.

The benchmark provides context, but an individual restaurant should compare its results with businesses operating under similar conditions.

4. General Retail

General retailers often face inventory expenses, shipping costs, returns, payment processing fees, rent, and competition from other sellers.

The selected general retail category reports a gross margin of 33.18% and a net margin of 5.61%.

This difference illustrates how operating costs can consume a substantial share of gross profit. Retailers can protect profitability by improving inventory turnover, reducing unnecessary markdowns, negotiating supplier terms, and understanding the actual contribution of individual products.

A product with strong sales may not be especially profitable if it requires frequent discounts or generates unusually high return and fulfillment costs.

5. Grocery and Food Retail

Grocery businesses often depend on consistent sales volumes and efficient inventory management. Spoilage, refrigeration, supplier prices, employee costs, and price competition can all affect their final earnings.

The selected grocery and food retail category reports a gross margin of 26.31% and a net margin of 1.32%.

This relatively thin net margin illustrates how a business can generate substantial sales while retaining a small share as net income.

Independent grocery stores may have different results from publicly traded companies, so owners should use the figure as context rather than a required target.

Practical areas to review include inventory accuracy, food waste, supplier agreements, energy use, and the profitability of different product categories.

6. Engineering and Construction

The engineering and construction category reports a gross margin of 15.46% and a net margin of 5.94%.

Construction businesses can face changing material prices, subcontractor expenses, insurance costs, equipment requirements, project delays, and payment disputes.

Profitability often depends on how accurately a company estimates project costs and manages changes during delivery. Even a project with substantial revenue can produce disappointing results when labor or material expenses exceed the original budget.

Owners should compare estimated and actual project costs, monitor labor productivity, document changes in project scope, and review the profitability of completed contracts.

7. Air Transport

The source’s air transport category reports a gross margin of 24.79% and a net margin of 2.51%.

Air transport has a distinct cost structure involving aircraft, fuel, maintenance, labor, airport charges, and other operating expenses. These costs make it different from many other transportation businesses.

The figures should not be applied directly to trucking companies, local delivery services, or independent logistics providers. Those businesses need benchmarks that reflect their own operating models.

The broader lesson is that industry classifications matter. A comparison becomes less useful when the selected category does not accurately represent the business being evaluated.

8. Apparel

Apparel businesses can report relatively high gross margins while retaining a much smaller percentage of revenue as net income.

The selected apparel category reports a gross margin of 56.88% and a net margin of 3.85%.

Inventory markdowns, marketing, shipping, returns, product development, and retail overhead can all reduce the final margin.

For a small clothing business, it is worth tracking inventory aging, return rates, advertising costs, and the profitability of individual product lines. Improving the margin may require better purchasing and inventory decisions rather than simply raising prices.

Why Do Profit Margins Differ Between Industries?

Industry benchmarks reflect differences in how businesses produce, sell, and deliver their products or services. Several factors explain why some sectors retain a larger share of revenue than others.

Direct Costs and Inventory Requirements

Businesses that purchase, manufacture, store, or transport physical goods often face substantial direct costs. Many service and digital businesses have different cost structures because they do not need to purchase inventory for every sale.

Inventory also ties up working capital and may lose value when customer demand changes. These factors can affect both profitability and the amount of cash available for daily operations.

Labor and Operating Expenses

Some businesses require substantial staffing to generate each additional dollar of revenue. Restaurants, construction companies, and labor-intensive service providers may face significant payroll and scheduling costs.

Other business models can increase sales without increasing staffing at the same rate. The ability to expand efficiently can influence operating and net margins.

Competition and Pricing Power

Businesses selling highly interchangeable products may have limited room to raise prices without losing customers.

Companies offering specialized expertise, differentiated products, or strong customer relationships may have more pricing flexibility. Even so, pricing power does not remove the need to manage expenses and deliver value.

Capital Investment and Financing

Equipment, vehicles, premises, and production facilities can require significant investment. Depreciation, maintenance, interest, and financing arrangements can influence reported profitability.

Two businesses with similar sales and operating activities may therefore report different net margins because their capital structures and expenses differ.

Business Size and Maturity

Larger companies may benefit from purchasing discounts, brand recognition, repeat customers, and established operating processes.

Smaller or newer businesses may face higher costs per transaction while building their customer base. Public-company averages should therefore be treated as broad references, not guaranteed targets for small businesses.

How to Compare Your Profit Margin With Industry Averages

An industry benchmark becomes useful when you compare it with the correct measure from your own financial statements.

Step 1: Calculate Your Current Profit Margin

Start with an income statement for a defined period.

Suppose your business generates $300,000 in annual revenue and records $18,000 in net income.

Net profit margin = ($18,000 ÷ $300,000) × 100 = 6%.

Your business retains $6 in net income for every $100 in revenue.

Step 2: Select a Comparable Industry

Choose a category that reflects what your business actually does. An online retailer may have different costs from a grocery store, even though both sell products.

Similarly, a consulting firm should not automatically compare itself with a software company simply because both serve business customers.

Step 3: Compare the Same Type of Margin

Compare gross margin with gross margin and net margin with net margin.

If your business has a gross margin of 40%, comparing that figure directly with an industry’s 7% net margin would be misleading because the measures account for different expenses.

Step 4: Consider Business Size and Operating Model

Public-company data can provide context, but small businesses may have different purchasing power, staffing arrangements, financing costs, and customer acquisition expenses.

Where reliable small-business benchmarks are available, use them alongside broader industry data. Also consider whether your company is new, expanding, or well established.

Step 5: Investigate the Reasons Behind the Difference

If your margin is below a benchmark, examine pricing, direct costs, payroll, inventory losses, rent, marketing, and other relevant expenses.

A lower margin does not automatically indicate poor management. Your business may be investing in growth, offering lower prices, or operating in a segment with structurally lower profitability.

Likewise, a higher margin does not guarantee financial stability. Cash flow, debt payments, and the consistency of sales still matter.

Step 6: Set a Realistic Improvement Goal

Use the benchmark as context, then set a goal based on your own financial circumstances.

If your current net margin is 6%, improving it to 7% may be a more useful first target than immediately aiming for 20%.

Monitor the effects of changes in pricing, expenses, and operating efficiency over time. The objective is sustainable improvement, not simply matching another company’s percentage.

How Small Businesses Can Improve Profit Margins

Industry comparisons can highlight opportunities, but actual improvement requires understanding the factors affecting your own business.

Review pricing and costs. Ensure that prices account for direct costs, relevant overhead, and the value delivered to customers.

Control avoidable expenses. Review recurring subscriptions, supplier contracts, payment processing fees, and other operating costs. Avoid cuts that damage product quality or customer experience.

Improve inventory management. Reduce waste, obsolete stock, excessive markdowns, and unnecessary inventory purchases.

Measure product and customer profitability. Identify offerings or customer relationships that consume disproportionate time and resources.

Improve operational efficiency. Reduce avoidable rework, scheduling problems, idle capacity, and unnecessary administrative tasks.

Monitor margins consistently. Review monthly results, investigate significant changes, and compare similar periods to account for seasonality.

The right approach depends on the business. A retailer may need better inventory controls, while a consulting firm may benefit more from improved project pricing and billable utilization.

To calculate your own figures and test different revenue or expense scenarios, use our profit margin calculation tool.

Frequently Asked Questions

Which industry has the highest profit margin?

It depends on the dataset and the type of margin being measured. Among the selected categories in this guide, software (system and application) has the highest net margin at 25.49% in the January 2026 NYU Stern dataset. This is not a claim that software has the highest margin of every industry.

What is a good net profit margin for a small business?

A net margin of 5% to 10% can be a useful starting reference for many small businesses, but the appropriate target depends on the industry. Owners should compare their results with similar companies and consider operating costs, debt, owner compensation, and reinvestment needs.

Why is gross profit margin higher than net profit margin?

Gross profit margin excludes many expenses deducted later in the income statement. Net profit margin reflects net income after the expenses included in that measure, so it is generally lower when a business has additional operating expenses, financing costs, and taxes.

Are public-company industry averages useful for small businesses?

Yes, as broad reference points. They illustrate how industry economics differ and provide context for evaluating profitability. However, public companies may benefit from greater scale, purchasing power, and different financing arrangements. Small businesses should not treat these figures as guaranteed targets.

How often should I compare my business with industry averages?

A quarterly benchmark review is a practical starting point for many small businesses, alongside monthly monitoring of internal profitability. Annual reviews can help identify longer-term trends and the effects of seasonal demand.

Final Thoughts

The average profit margin by industry provides useful context for evaluating financial performance, but it cannot replace an understanding of your own costs and business model.

Software, services, retail, restaurants, construction, air transport, and apparel operate under different financial conditions. Even companies within the same sector can achieve different results because of their pricing, scale, customer base, and expense structure.

Start by calculating the correct margin, choosing a relevant benchmark, and investigating the factors behind the difference. Use the findings to set realistic goals and build a business that can sustain profitability over time.