What is a good profit margin? As a rough rule, a net profit margin around 10% is considered average, 20% or more is good, and under 5% is low — but it varies widely by industry. Margin is the share of revenue left as profit after costs.
Profit margin shows how much of each rupee of sales you keep as profit. What counts as 'good' depends heavily on your industry — software runs high margins, while retail and food run thin — so always compare against your sector.
Profit margin ranges
| Profit margin | Rating | What it means |
|---|---|---|
| 20% and above | Good | Healthy profitability for most businesses. |
| 10–20% | Average | Typical for many established businesses. |
| 5–10% | Low | Thin; common in high-volume, low-margin sectors. |
| Below 5% | Very low | Little cushion; vulnerable to cost rises. |
What affects your profit margin
- Pricing — higher prices lift margin if sales hold
- Cost of goods — cheaper inputs widen margin
- Overheads — rent, salaries and marketing eat into it
- Industry — margins differ hugely by sector
- Scale — volume can lower per-unit cost
How to improve it
- Review pricing against value and competitors
- Negotiate supplier and input costs
- Cut waste and unnecessary overheads
- Focus on higher-margin products or services
Work out your own numbers — the Profit Margin Calculator does it instantly, for free, with the formula and a worked example built in.
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