What Is a Good Net Profit Margin? (With Benchmarks)

By Harry ChuMay 24, 202513 min read

What is a good net profit margin? It's one of the first ecommerce metrics investors and smart operators look at — because it tells you how much money your business actually keeps after expenses. In simple terms, 5% is low, 10% is healthy, and 20%+ is strong.

But what’s “good” can shift wildly depending on your industry, pricing model, and cost structure. Let’s break down the net profit margin benchmark and how to know if yours is on the right track.

What is a Good Net Profit Margin

A good net profit margin is around 10% for most businesses. Anything above 20% is considered strong, while a margin below 5% may signal your business is struggling to stay profitable. That said, what counts as “good” can vary depending on your industry, cost structure, and pricing model.

Here’s a quick breakdown:

Net Profit Margin

Performance

What It Means

Less than 5%

Low

Business may be struggling to cover costs or operating inefficiently

Around 10%

Healthy

Average for many stable businesses; indicates basic profitability

20% or more

Very Good

Strong profit margins; shows efficiency and financial health

40–50%

Excellent

Common in SaaS, digital products, and premium service models

Even a 5% margin might be great in industries with tight competition, while a 20%+ margin is expected in high-margin models like software or digital services. That’s why knowing your benchmark matters — we’ll cover industry-specific numbers next.

Pro tips: Net profit margin is calculated by dividing your net profit by revenue and multiplying by 100. If you want to skip the math, try using a net profit margin calculator—like TrueProfit’s free calculator—to get instant, accurate results.

Gross Profit Margin vs. Net Profit Margin: What's the Difference?

Before we dive even deeper, it’s worth noting the difference between net profit margin and gross profit margin. While gross margin shows how much you keep after covering the cost of goods sold (COGS), net margin factors in all operating expenses, taxes, and other costs—giving you the complete picture of profitability.

Learn more: Gross Profit vs Net Profit Explained (With Examples)

Here's a clear and concise comparison table between Gross Profit Margin vs Net Profit Margin:

Aspect

Gross Profit Margin

Net Profit Margin

Definition

Percentage of revenue left after deducting Cost of Goods Sold (COGS)

Percentage of revenue left after all expenses, including COGS, operating expenses, taxes, interest, etc.

Formula

(Revenue – COGS) / Revenue × 100

Net Profit / Revenue × 100

Focus

Measures production efficiency

Measures overall profitability

Expenses Included

Only COGS

All expenses (COGS, operating, interest, taxes, etc.)

Usefulness

Evaluates core profitability of products/services

Evaluates overall financial health and business efficiency

Insight Provided

Shows how well a company manages production costs

Shows how much actual profit the company retains

Typical Users

Product managers, operations teams

Investors, business owners, financial analysts

Limitations

Doesn’t account for other business costs

Can mask product-level performance if used alone

gross profit vs net profit on TrueProfit's pnl — *Gross profit vs Net profit on TrueProfit's pnl dashboard. Source: TrueProfit demo store*

Industry Benchmarks for Net Profit Margin

Like we said above, a good net profit margin depends on your industry. A 5% margin might be great in retail, but low for SaaS. That’s why benchmarking against similar businesses gives you better context for evaluating your performance. For example, understanding typical ecommerce profit margins—usually between 5% and 15%—can help you see whether your store is on track or needs improvement.

Here’s a quick look at average net profit margins by industry:

Industry

Average Net Profit Margin

Retail

2%–5%

Restaurants

5%–10%

SaaS

20%–40%

Agencies

15%–25%

E-commerce

5%–15%

Manufacturing

5%–10%

Consulting

15%–30%

Margins vary based on overhead, pricing models, and how scalable the business is. If you run a high-volume, low-margin business like retail, you’ll naturally see smaller percentages than someone selling software or services.

How to Improve Your Net Profit Margin?

Even small changes can have a big impact on your bottom line. Here are six practical ways to increase your net profit margin:

1. Monitor your net profit margin consistently

Improving profit isn’t just about selling more — it’s about working smarter. Start by monitoring your net profit margin consistently. If you don’t know where your profit leaks are, you can’t fix them.

The first step is clear, accurate tracking — and that’s where tools like TrueProfit help. With real-time data on your net profit and margins, you can make faster, more confident decisions.

2. Reduce costs without hurting quality

Next, take a hard look at your current expenses. Are there tools, subscriptions, or services you’re paying for but no longer need? Trim the fat without compromising quality. This could mean switching to more affordable alternatives or renegotiating contracts with suppliers.

3. Re-evaluate your pricing strategy

Pricing plays a bigger role than most people think. If your margins feel tight, revisit your pricing strategy. Raising prices might feel risky — but if your product delivers value, customers are often willing to pay more. Test different offers, bundle products, or create premium versions to increase perceived value.

4. Cut inefficient marketing spend

Marketing should be efficient, not just loud. It’s easy to overspend on ads that don’t convert. Instead of spreading your budget thin, double down on what brings results. Cut campaigns with high acquisition costs and low customer value. Make sure you’re tracking attribution clearly, so you know what’s actually driving conversions.

5. Improve operational efficiency

Here’s the thing you might miss: Manual processes eat up time and money. Automating routine tasks or outsourcing work that drains your resources can free up your team to focus on growth. Even small changes in workflow can lead to major savings.

6. Focus on high-margin products/services

Finally, focus on what sells — and what pays. Some products generate more profit than others. Highlight your bestsellers, and don’t be afraid to phase out items that are hard to sell or cost too much to support. Upsells, cross-sells, and smart positioning can help you earn more from each customer without adding complexity.

Learn more: High Profit Margin Small Business Ideas to Kickstart

What is a Good Net Profit Margin FAQs

Is 40% net profit margin good?

Yes, a 40% net profit margin is considered excellent. It shows the business is highly profitable and operating very efficiently. However, what's considered "good" can vary depending on the industry. High-margin businesses like SaaS or consulting often see margins in this range.

What is the ideal net profit margin?

An ideal net profit margin is around 10% for most businesses. This level typically indicates healthy financial performance. A margin above 20% is considered very strong. Margins below 5% may signal financial risk, depending on the industry.

What is a good profit margin?

A good profit margin is typically around 10%.

Margins under 5% are considered low, while margins over 20% are high. However, what’s considered “good” can vary by industry and business model.

Is 50% a good net profit margin?

A 50% net profit margin is excellent and indicates very strong profitability. It means the business is highly efficient at converting revenue into profit. However, such high margins are rare and depend on the industry and business model.

Is 40% profit margin too high?

No, a 40% profit margin is not too high. It provides a strong financial buffer and indicates a healthy business. Maintaining overhead costs alongside this margin helps ensure sustainable profits. However, what’s considered “too high” depends on the industry and business model.

Is 30% a high profit margin?

Yes, a 30% profit margin is generally considered high. It shows good profitability but can vary depending on the industry. Some industries naturally have higher or lower average margins.

What is the rule of 40 profit margin?

The Rule of 40 means that a SaaS company’s revenue growth rate plus its profit margin should be greater than 40%. It’s a guideline used by investors to balance growth and profitability in SaaS businesses.

How to improve net profit margin?

To improve net profit margin, increase revenue by selling more or raising prices. You can also reduce costs by finding cheaper materials or cutting unnecessary expenses. Both strategies help boost overall profitability.

What is a good net profit ratio?

A good net profit ratio varies by industry. For example, retail businesses often have a good ratio between 0.5% and 3.5%. Generally, a net profit ratio of 10% to 20% is considered average across many industries.

Is 25% a good net profit margin?

Yes, a 25% net profit margin is considered good. It is higher than the average 10% margin and indicates strong profitability, though what’s “good” can vary by industry.

What is the 50% margin rule?

The 50% margin rule requires you to deposit at least 50% of the total purchase price when buying stocks on margin. For example, to buy $10,000 worth of stock, you must have $5,000 in your account as equity.

Use your margin as a guide, not just a number. Track it consistently, compare it to industry benchmarks, and take smart steps to improve it over time.

A “good” net profit margin depends on your industry — but as a general rule:
10% is healthy, 20%+ is strong, and below 5% may be risky.

Harry Chu

Founder of TrueProfit & eCommerce Profitability Expert

Harry Chu is the Founder of TrueProfit, a net profit tracking solution designed to help Shopify merchants gain real-time insights into their actual profits. With 11+ years of experience in eCommerce and technology, his expertise in profit analytics, cost tracking, and data-driven decision-making has made him a trusted voice for thousands of Shopify merchants.