Understanding Profit Margins by Industry (2024 IRS Data)

What Is a Profit Margin?

A profit margin is the percentage of revenue remaining after all costs are deducted. It tells you how much of every dollar in revenue becomes profit.

The formula: Profit Margin = Net Income ÷ Total Revenue × 100

Example: If a landscaping business earns $500,000 in revenue and has $430,000 in expenses, the net income is $70,000, giving a 14% profit margin.

How the IRS Measures Industry Margins

The IRS Statistics of Income (SOI) program collects data from all US business tax returns and aggregates them by NAICS industry. The profit margins on PlainBizBench represent the aggregate net income ÷ aggregate total receipts for all businesses in that NAICS code.

This includes businesses of all sizes — a 2-person firm and a 2,000-person firm both contribute to the same average. This is important to keep in mind when interpreting the data.

Industry Profit Margin Ranges

Here's a rough guide to margin benchmarks by industry type:

• Finance & Insurance (NAICS 52): 10–50%+ — asset-light, high-leverage businesses
• Real Estate (NAICS 53): 12–30% — rental income with relatively fixed costs
• Professional Services (NAICS 54): 8–20% — knowledge work with moderate overhead
• Health Care (NAICS 62): 5–15% — regulated margins, high labor costs
• Construction (NAICS 23): 3–8% — project risk, material costs, subcontractor payments
• Retail Trade (NAICS 44–45): 2–6% — high volume, thin margins
• Food Services (NAICS 722): 3–9% — notoriously thin margins
• Manufacturing (NAICS 31–33): 4–12% — varies widely by subsector

Why Do Margins Vary So Much?

Several structural factors explain why some industries naturally command higher margins:

• Capital intensity: Industries with high fixed asset costs (manufacturing, utilities) often have lower margins but high returns on capital
• Intellectual property and barriers: Sectors with patents or regulatory barriers (pharma, finance) can charge premium prices
• Competition dynamics: Highly competitive markets with low switching costs (retail, restaurants) compress margins
• Labor vs. asset mix: Professional services replace capital costs with human expertise, often yielding higher margins

Reading the Data Correctly

Two important cautions when using industry margin data:

1. Entity type matters. S Corporations often show lower "net income" because owner compensation is included as wages, reducing stated profit. C Corporations may show different margins due to double-taxation structures. Use the entity-type breakdown on PlainBizBench to compare apples to apples.

2. Outliers distort averages. A small number of highly profitable firms can pull the sector average significantly above what a typical business earns. If possible, seek median benchmarks (not available in IRS SOI, which reports averages).

How to Use This Data

The most useful application is directional comparison:

• Is my margin within the normal range for my industry?
• Has my margin trended up or down relative to the industry over time?
• Which specific cost line is causing my margin gap?

Use the rankings page to see where your industry stands relative to the rest of the economy, and your specific sector overview to compare sub-industries.