What Is a Good Profit Margin for a Small Business?
By James Blanckenberg · Published May 11, 2026
"Is 22% a good margin?" — it depends entirely on your industry, whether you mean gross or net, and whether you're comparing to peers or to your own past. This guide gives you the benchmarks, explains why they differ, and shows you how to know if your margin is healthy.
Gross margin vs net margin — set the baseline
Two completely different numbers. Gross margin is what's left after the direct cost of producing what you sell (COGS). Net margin is what's left after everything — COGS, operating costs, interest, and tax. Net margin is always lower than gross margin and is the "real" measure of business profitability.
Benchmarks by industry
| Industry | Typical gross margin | Typical net margin |
|---|---|---|
| Software / SaaS | 70–85% | 15–30% |
| Consulting / services | 50–70% | 15–25% |
| Manufacturing | 25–35% | 5–10% |
| Retail (general) | 30–50% | 2–5% |
| Grocery / supermarket | 20–30% | 1–3% |
| Restaurants | 60–70% | 3–8% |
| Ecommerce (own product) | 40–60% | 8–15% |
| Ecommerce (resale) | 20–35% | 2–7% |
| Construction | 15–25% | 3–7% |
Why service businesses always look more profitable
Service businesses have very low COGS — the only direct cost is labour. A consulting firm billing $150/hour with consultants paid $80/hour has a 47% gross margin per hour. A retailer marking up product 50% has the same number on paper but pays rent, staff, and inventory holding costs that the consultant doesn't. By the time you reach net profit, the two businesses look much closer.
The three numbers that matter
- Are you above industry median? Below median usually means a pricing problem, a cost problem, or product/market fit issues.
- Is your margin trending up, down, or flat year-over-year? Trend matters more than absolute level. A 6% net margin growing to 8% next year is healthier than a 12% margin sliding to 10%.
- Does your gross margin cover your operating expenses with room left? If gross profit barely covers OpEx, you're one bad month from a loss.
Red flags by margin level
- Gross margin under 20%: nearly impossible to absorb shocks. One supplier price rise, returns spike, or discounting season can wipe out profit.
- Net margin under 5%: any cost increase or revenue dip pushes you into a loss. Vulnerable.
- Negative net margin: losing money. Either fundraise, cut costs hard, or change the business model.
How to actually improve margin
Three levers, in order of effectiveness:
- Raise prices. A 5% price increase typically drops 80% to the bottom line — almost nothing else has that leverage. Most small businesses are under-pricing.
- Cut COGS. Renegotiate supplier contracts, switch to higher-yield processes, eliminate waste, batch production.
- Cut OpEx. Slowest because it's often tied to fixed contracts (rent, salaries) but high-impact long-term.
Measure yours now
Plug your numbers into the Profit Margin Calculator for a one-screen view of gross, operating, and net margin. For a full revenue-to-net-profit waterfall, use the Net Profit Calculator which deducts COGS, OpEx, interest, and tax in sequence.
Bottom line
- There's no universal "good" margin — it depends on industry.
- SaaS, services, and restaurants have high gross but very different net margins.
- Trend matters as much as level. Improving 2% per year is healthier than holding flat at a high number.
- Net margin under 5% is vulnerable; under 10% is thin; over 15% is strong for most industries.
Written by
James BlanckenbergFounder, BusCalcTools
Founder of BusCalcTools and FinnCalc. Builds practical financial calculators for small business owners and freelancers across the US, UK, and South Africa.
Editorial review by: James Blanckenberg, Founder & Editor
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For information only. This calculator does not constitute financial, accounting, or tax advice. Consult a qualified professional before making business decisions.