As many have said, it depends on the type of industry. A good gross profit margin ranges from 30 to 35% on average, but it varies a lot by industry. Check the averages in this publication to determine if your company is performing well against the competition. There are basic levels of gross profit margin that are considered low, medium, or good. Usually, a gross profit margin of between 50 and 70% is good and any margin above that is very good.
A gross profit margin of less than 50% is generally not desirable, although lower margins may remain sustainable for companies with lower operating costs. A profit margin of 20% or more is generally considered good. The profit margin shows how stable and profitable your company is and tells investors and creditors how effectively you manage your cash. In most industries, 30% is a very high net profit margin. Companies with a 20% profit margin generally show strong financial health.
If this metric drops to around 5% or less, most companies will need to make changes to remain sustainable. Gross profit margin, also called gross margin, is the profit that remains after subtracting the cost of goods sold (COGS) from net income. Because of the nuances of each business and the wide variation between the average margins of different industries, what is a good profit margin for one company may be unsustainable for another. Improving these numbers can generate greater profits at the end of the year, which can open the door to growth in other areas of the company.
For example, data from New York University indicates that the average gross profit margin for software and applications is nearly 72% and around 54% for other types of information services. They have high expenses due to the need for inventories, corporate employees and labor to sell products at a profit. Gross profit margins are useful for determining the profitability of a single item, while net profit margins are better for measuring a company's overall profitability. Next, we take an in-depth look at the different types of profit margins, the factors that influence a good profit margin, and how you can help improve your company's profit margin.
Other companies with higher net profit margins at the product level are likely to have higher operating profit margins at the business level. The best method for determining a good gross profit margin is to compare the percentages with industry averages (along with operating margin and net profit calculations) to identify the ratios that are good for your company. Auto parts companies have an average gross profit margin of around 15.6%, while in the case of home furniture it is around 30%. Operating profit margin, also called operating margin, is another important metric used by business owners.
