The question seems simple enough. What’s a good profit margin for a large business?
The answer depends entirely on which margin you’re measuring, what industry the business operates in, and what “good” actually means in context. A 7% net profit margin might be terrible for a software company but exceptional for a grocery chain.
Let’s break down what the numbers actually reveal about large business profit margins.
The Three Margins
Gross Profit Margin
This measures revenue remaining after subtracting the cost of goods sold (COGS). It’s calculated as:
Gross Profit Margin = (Revenue – COGS) / Revenue × 100
Gross margin reveals how efficiently a company produces or acquires what it sells. A manufacturer spending 60% of revenue on materials and production has a 40% gross margin.
Operating Profit Margin
This accounts for both COGS and operating expenses—things like salaries, rent, marketing, and R&D—but excludes interest and taxes.
Operating Profit Margin = Operating Income / Revenue × 100
Operating margin shows how well a company manages its core business operations.
Net Profit Margin
This is the bottom line. After every expense—COGS, operating costs, interest, taxes, and everything else—what percentage of revenue becomes actual profit?
Net Profit Margin = Net Income / Revenue × 100
Net margin is what investors care about most. It represents the actual money available for dividends, reinvestment, or building reserves.
What Fortune 500 Companies Actually Earn
Real-world data from the largest companies provides the clearest picture of what “good” actually looks like at scale.
According to a recent Fortune 500 analysis, companies collectively earned $1.87 trillion in profits in 2024 on revenues exceeding $20 trillion. That works out to an average net profit margin around 9-10% across all Fortune 500 companies.
But that average masks enormous variation. The most profitable company on the 2024 Fortune 500 list, Alphabet (Google’s parent company), generated $100 billion in profits. Berkshire Hathaway earned $81.4 billion. Apple consistently generates over $50 billion annually.
Historical data shows that for most of the past 71 years, the combined profit margin of the Fortune 500 has fluctuated between 5% and 7% of revenue. However, the past three decades have brought significant changes, with margins creeping higher as tech and finance companies have become more dominant.
Industry Makes All the Difference
Banking and Financial Services: The Margin Kings
Banks dominate profit margin rankings. Money center banks and regional banks report near-perfect gross profit margins—around 99-100%—because their “cost of goods sold” is essentially zero. They leverage customer deposits to make loans and investments.
Net profit margins for major banks typically range from 20-30%.
Technology and Software: Premium Margins
According to NYU Stern data, the technology sector has gross margins around 52-58%, with some software companies achieving gross margins of 70-90%.
Net margins for major tech companies are equally impressive:
Apple: 25-28% net profit margin
Microsoft: approximately 36% net profit margin
Alphabet (Google): around 25-28% net profit margin
Meta (Facebook): 33-40% net profit margin depending on the year
Nvidia: 42% net profit margin (though historically closer to 25%)
These extraordinary margins exist because tech companies scale without proportionally increasing costs.
Oil, Gas, and Energy: Volatile but Profitable
Energy companies experience highly variable margins depending on commodity prices, but when times are good, margins are exceptional.
The oil and gas industry reports net profits near 28% on average, with gross margins around 58-59%. Saudi Aramco, the world’s most profitable company in recent years, generated $159 billion in profit in fiscal year 2023.
However, energy margins fluctuate dramatically with oil prices. When crude oil trades at $80-100 per barrel, energy companies print money. When prices collapse, margins evaporate.
Pharmaceuticals and Healthcare: High R&D, High Margins
Pharmaceutical companies enjoy high gross margins—often 70-80%—because pills that cost pennies to manufacture sell for dollars. However, the massive R&D investments required to develop drugs reduce net margins considerably.
Healthcare as a broader sector shows net margins around 10-15%, with significant variation between pharmaceutical manufacturers (higher margins) and healthcare providers like hospitals (lower margins).
Retail and Consumer Goods: The Low-Margin Grind
According to Fortune 500 data, retail exhibits profit margins around 2.6%. Walmart, America’s largest retailer, typically operates with net margins around 2-3%. Even retail giants with immense scale struggle to push margins above 5%.
Grocery stores are even tighter—net margins typically range from 1-3%. The sheer volume of sales compensates for razor-thin per-item profitability.
Some retail segments do better. Luxury retailers can achieve net margins of 15-25% by charging premium prices. Specialty retailers with differentiated products might see 8-12% net margins.
Manufacturing:
Manufacturing companies face high capital requirements, significant labor costs, and commodity price fluctuations. Gross margins typically range from 20-40% depending on the product category.
Restaurants and Food Service:
Restaurants operate with some of the tightest margins in business. Food costs, labor, rent, and spoilage all eat into profitability.
Net margins for restaurants typically range from 3-10%, with most hovering around 6-8%. Fast food chains with highly optimized processes can achieve 10-15% net margins, but full-service restaurants often struggle to maintain even 5%.
Media and Wholesale:
Media companies have profit margins around 0.76%, making them among the least profitable large businesses. Wholesalers fare slightly better at 1.53%, but both sectors face intense competition and commoditization.
What the Data Says: Industry Benchmarks for Large Businesses
Highest Net Profit Margins:
Banks (Money Center): 30.89%
Banks (Regional): 29.67%
Oil/Gas (Integrated): 28.26%
Software (Internet): Can vary widely, but established players often exceed 25%
Tobacco: 25-30%
Pharmaceuticals: 20-25%
Moderate Net Profit Margins:
Aerospace and Defense: 8-12%
Telecommunications: 10-15%
Automotive: 5-8%
Chemicals: 8-12%
Professional Services: 15-25%
Lower Net Profit Margins:
Retail: 2-5%
Grocery Stores: 1-3%
Construction: 1.5-5%
Restaurants: 3-10%
Transportation and Logistics: 3-6%
Wholesale: 1.5-3%
These benchmarks provide context. A large retail business achieving a 4% net margin is performing well. That same 4% margin would be catastrophic for a software company.
The Bottom Line on Large Business Margins
As a universal benchmark, large businesses with net profit margins around 10% are performing reasonably well. Companies pushing 15-20% net margins are strong performers. On the flip side, large businesses with net margins consistently below 5% face real challenges.
And still context is everything when evaluating large business profit margins.
Thank you for being with me.
