How to Benchmark Your Business Against Industry Averages

Why Business Benchmarking Matters

Running a business without benchmarking is like driving without a speedometer. You might feel like you're doing well — until you compare your 8% profit margin to the 22% average in your industry and realize there's significant room for improvement.

Industry benchmarks give you an objective reference point for evaluating your business performance. They can reveal whether your margins are competitive, your payroll is too high, or your revenue per employee is below par.

Step 1: Find Your NAICS Code

The North American Industry Classification System (NAICS) is the standard for classifying US businesses. Every industry benchmark on PlainBizBench uses NAICS codes.

To find your code:

• Visit the Census Bureau NAICS lookup tool
• Search for your business type by keyword
• Select the most specific code that applies (6-digit codes are most precise)
• Note both your specific code and the 3-digit parent code for broader comparisons

For example, a restaurant would use NAICS 722511 (Full-Service Restaurants) or 722513 (Limited-Service Restaurants), both under 7225 (Restaurants and Other Eating Places).

Step 2: Pull Industry Benchmarks

With your NAICS code in hand, look up your industry on PlainBizBench. You'll find:

• Profit margin: Net income ÷ total receipts from IRS tax returns
• Average payroll per employee: Annual compensation benchmarks from Census CBP
• Revenue per establishment: Helps gauge if you're under or over-performing on revenue
• Entity type breakdown: How similar businesses are structured (C Corp, S Corp, etc.)

Step 3: Calculate Your Own Metrics

Before you can benchmark, you need your own numbers:

• Profit margin: Net income ÷ gross revenue × 100 = %
• Payroll per employee: Total annual payroll ÷ number of full-time equivalent employees
• Revenue per establishment: Total revenue ÷ number of locations

Use your most recent full year of financial data for the most accurate comparison.

Step 4: Interpret the Gap

Compare your numbers to the industry averages:

• Your margin > industry avg: Strong position. Focus on maintaining advantages.
• Within ±2 percentage points: Healthy. Normal variation for your business stage.
• 3–5 points below: Worth investigating. Are costs too high? Revenue too low?
• 5+ points below: Significant gap. Consider a full cost structure review.

Remember: IRS data includes businesses of all sizes, from sole proprietors to large firms. A small business may legitimately have higher overhead relative to a large corporation in the same industry.

Step 5: Identify the Root Cause

If your margins are below average, dig deeper into the cause:

• Pricing: Are you charging market rates? Underpricing is the most common margin killer.
• COGS: Is your cost of goods sold in line with industry norms?
• Overhead: Rent, payroll, insurance — are these proportional to revenue?
• Revenue mix: Some product/service lines may be dragging down your blended margin.

Limitations of Industry Benchmarks

IRS and Census data has important limitations to understand:

• Data lag: IRS SOI data typically lags 2–3 years behind the current year.
• Averages can mislead: A skewed distribution means the median may differ significantly from the average. A few highly profitable outliers can pull the average up.
• Size matters: National averages combine businesses of all sizes. A 5-person shop will have different economics than a 500-person company in the same NAICS code.
• Geography matters: Payroll benchmarks vary significantly by state and metro area.

FAQ