Net Profit Margin

[mbonacker]

Curious to know what everyone feels is a good net profit margin or what the industry average is. I understand there are variables and everyone’s will be different because of different overhead etc... but trying to see what the average is.

 

[Christian @ 2CT Media]

We have been averaging a profit margin of 39% year over year with large equipment purchases included in our costs to get that factor. I was always told 30% is minimum healthy and we strive for 40%.

 

[Sidney]

I'm with 2CT Media....we go for 40% minimum but average higher.

 

[vincesigns]

it seems that many people have different definitions of "Net" profit margin. Here is the definition I use. Net Profit is the sum left after paying for all materials, labor, overhead expenses (rent, insurance, etc) and taxes. for large publicly held companies 8% to 12% is very respectable. For small companies 10 -15% is respectable. Many franchise sign companies can achieve 20 - 30% if they manage their business well. The higher your volume the more difficult it is to maintain higher net profit % but in the end you can only put $'s in the bank (not %'s)

 

[Christian @ 2CT Media]

Our Profit Margin is based on Net, bottom line of balance sheet. So in example if we did 1mil this past year or net after all expenses paid would be $390000.

 

[Ringo]

Thats a solid Net profit, I have a goal to be at 25% and I own a couple franchise shops.

 

[mbonacker]

Thanks for all of your input.

 

[TopFliteGraphics]

The goal of every non-publicly traded company should be as close to zero percent net profit as possible since that is the dollar amount on which you pay corporate taxes. If you are showing a 40% Net Profit - YOU NEED A NEW ACCOUNTANT!!!

 

[dypinc]

The goal of every non-publicly traded company should be as close to zero percent net profit as possible since that is the dollar amount on which you pay corporate taxes. If you are showing a 40% Net Profit - YOU NEED A NEW ACCOUNTANT!!!

Not so much now with the new tax law. We might be able to afford to make a profit again.

 

[equippaint]

If you're making real money, it's kind of hard to bury it all in expenses and if you can, then maybe you need a new accountant too. If you're constantly buying equipment, that depreciates, and using section 179 just to avoid taxes you're essentially spending a dollar to save a dime. If you're buying equipment every year on credit just for the 179 write off, it will eat your lunch in a few years when you have a bunch of payments that use up your cash but are not expenses anymore to offset your revenue.

 

[Christian @ 2CT Media]

We are a cash based business in the sense that we only buy things when we have cash in the bank or a project to pay for it. That being said claiming $0 income on a business has a lot of downsides also depending on the type of business you are set up as.

Most notably it hampers your ability to get loans for big things like commercial property, it also in many states could be the difference between a personal guarantee or not.

 

[mjkjr]

it seems that many people have different definitions of "Net" profit margin. Here is the definition I use. Net Profit is the sum left after paying for all materials, labor, overhead expenses (rent, insurance, etc) and taxes. for large publicly held companies 8% to 12% is very respectable. For small companies 10 -15% is respectable. Many franchise sign companies can achieve 20 - 30% if they manage their business well. The higher your volume the more difficult it is to maintain higher net profit % but in the end you can only put $'s in the bank (not %'s)

My understanding of the common percentages is the same as yours.

Here's the way I learned to calculate Net Profit Margin (NPM) and Gross Profit (GPM):

NPM = (Revenue - Expenses) / Revenue
GPM= (Sales - COGS) / Sales

The most important thing in these formulas is the distinction between Revenue (any and all income) vs Sales (a subset of the former), and Expenses (any and all expenses) vs COGS (Cost of Goods Sold, a subset of expenses, pretty self-explanatory).

My Gross Profit Margin averages 73.5% and my Net Profit Margin averages 22.5% so far. I've been in business for 3.5 years (for context).

 

[Sidney]

it seems that many people have different definitions of "Net" profit margin. Here is the definition I use. Net Profit is the sum left after paying for all materials, labor, overhead expenses (rent, insurance, etc) and taxes. for large publicly held companies 8% to 12% is very respectable. For small companies 10 -15% is respectable. Many franchise sign companies can achieve 20 - 30% if they manage their business well. The higher your volume the more difficult it is to maintain higher net profit % but in the end you can only put $'s in the bank (not %'s)

Very well said/laid out!!