What Is A Good Profit Margin For A Small Business? (2025)

By Lila LeJune 19, 202518 min read

Wondering what a good profit margin for a small business in 2025?

The short answer:

A net profit margin of 10% is considered healthy, while anything above 20% is strong.
For gross profit margin, 50–70% is a solid range for small eCommerce stores.

But here’s the thing — “good” isn’t one-size-fits-all. Your ideal margin depends on what you sell, how you operate, and where your money goes.

In this guide, we’ll break down both gross and net profit margin benchmarks for 2025, explain what they really mean, and help you figure out how your numbers stack up. Let’s dive in.

What Is a Good Profit Margin for Small Business?

An NYU report puts the average U.S. net margin at 7.71% across industries.

Here’s the quick breakdown for 2025, down to net and gross profit margin level.

For net profit margin:

5% = Low but common when you’re just starting
10% = Healthy and sustainable
20%+ net profit margin = Strong. You’ve got healthy breathing room.

For gross profit margin, everything between 50-70% is good for small businesses.

That said, "good" isn’t one-size-fits-all.

Your ideal margin depends on what you sell, how you fulfill, and where your money goes.

Want to know if your margins are healthy? Try our free profit margin calculator to find out in seconds.

Average Small Business Profit Margin by Industry

Some industries just have tighter margins. Here’s the ballpark:

Industry

Gross Profit Margin

Net Profit Margin

Software (System & Apps)

71.52%

19.14%

Software (Entertainment)

63.43%

20.35%

Oil/Gas (Production)

58.75%

28.26%

Healthcare Products

55.64%

8.19%

Beverage (Soft Drinks)

54.52%

13.73%

Beverage (Alcohol)

45.25%

8.59%

Real Estate (General)

46.70%

16.91%

Restaurant/Dining

32.43%

10.66%

Retail (Distributors)

32.34%

7.55%

Retail (General)

30.86%

3.09%

Retail (Automotive)

21.88%

4.32%

Business & Consumer Services

33.50%

5.45%

Computer Services

25.52%

4.40%

Information Services

32.72%

3.49%

Packaging & Containers

21.71%

2.85%

Advertising

28.11%

0.89%

Engineering/Construction

13.85%

1.67%

Food Wholesalers

14.86%

1.21%

Farming/Agriculture

16.49%

7.12%

Entertainment

38.09%

-0.23%

Insurance (General)

33.93%

8.88%

Investments & Asset Management

66.89%

19.82%

Transportation

25.12%

5.96%

Check out the full list in the U.S. Margins by Sector.

Remember to use those benchmarks as a reference point, if your numbers aren’t matching yet, still no reason to give up right now.

There are a lot of factors that affect your profit margin, and most of them are totally within your control. We’ll break them all out below.

Key Factors That Affect Profit Margins

If your profit margins feel tighter than expected, it could be due to shifts in four key metrics that directly impact your bottom line. Let’s break them down.

1. COGS (Cost of Goods Sold)

This includes product cost, manufacturing, shipping, and sometimes insurance.

Cost of goods sold is a big cost. If your COGS goes up (e.g., product + shipping cost jumps from $20 to $30), your profit shrinks unless you raise your prices.

2. Inventory

Let’s say you bulk-ordered 500 mugs and only sold 10 this month. That unsold inventory cost still sits with you.

It doesn’t hurt your margin directly yet, but it will if the mugs go out of style or you discount them to get rid of them.

3. Taxes

This cost hits after you’ve done all the hard work. If you don’t factor them in, your “profit” might look great on paper — until tax season cuts into it.

4. Net Profit vs. Revenue

Net profit, also known as the bottom line. It’s your total revenue minus all expenses — product costs, shipping, ads, software tools, fees, taxes, etc.

Revenue, more common, is how much money you bring in from selling your stuff — before you subtract anything.

Because profit margin = net profit ÷ revenue, so these two metrics will make or break your profit margin.

Here’s how it affects:

If your net profit goes up and revenue stays the same → margin goes up.
If your revenue goes up but net profit stays the same → margin goes down.

How to Accurately Track Profit Margins for Your eCommerce Business

Like we said above, there are different types of profit margins. The one you’ll want to keep your eye on is net profit margin — your actual bottom line after all costs are accounted for.

Here’s the basic formula:

Net Profit Margin = (Net Profit ÷ Revenue) × 100

For the profit margin calculation, you can:

1. Calculate it manually using a spreadsheet:

Step 1: Subtract your total expenses from your total revenue — this gives you net profit.
Step 2: Divide that number by your revenue.
Step 3: Multiply the result by 100 to get your profit margin percentage.

Let’s say you brought in $1,000 in sales and spent $800 on expenses.
Your net profit = $200 → Your profit margin = 20%

Now here’s the thing — profit margin tracking should be real-time. Because if you’re only checking your margins monthly (or worse, quarterly), you’re probably missing red flags.

Spreadsheet simply can’t support you with “real-time”. It won’t catch sneaky fees, fluctuating shipping rates, or the $79/month app that quietly renewed last night. The moment your ad costs spike or a supplier fee creeps up, that sheet becomes outdated.

2. Real-time Profit Tracking with TrueProfit (Better Way)

TrueProfit is a Shopify profit tracker app that takes care of everything spreadsheets can’t.

It plugs directly into your Shopify store and ad platforms to automatically track:

All types of costs
Ad spend from all marketing channels
Taxes, transaction fees, shipping fees
App subscriptions and any other hidden fees you almost forgot to put in your sheets

Instead of guessing, you get real-time profit insights by product, by day, and by channel — all in one clean dashboard.

No spreadsheets. No stress. Just accurate, up-to-the-minute numbers to help you make smarter decisions.

TrueProfit's dashboard

What is a Good Profit Margin for a Small Business FAQs

Is 50% profit margin good in a small business?

What is a Good Profit Margin for a Small Business FAQsYes, a 50% profit margin is considered good for a small business. It means you keep half of your revenue after covering the cost of goods sold, which gives you room to cover other expenses and still make a profit.

Is 20% a good profit margin?

Yes — a net profit margin between 10% and 20% is generally considered healthy across many industries. If you’re hitting 20% or more, that’s typically seen as very strong.

Is 30% profit margin too high?

No, a 30% profit margin is not too high — it’s actually very strong. Most healthy businesses aim for around 20%, so hitting 30% means your business is doing very well.

Is 40% profit margin good?

Yes, a 40% profit margin is considered very good. It gives your business room to cover overhead costs and still keep a healthy net profit.

Is 75% a good profit margin?

Yes, a 75% profit margin is excellent. It means your business keeps a large portion of revenue after covering the cost of goods, which is rare and very strong.

Is 80% profit margin good?

Yes, an 80% profit margin is very good—especially in industries like software or digital products where costs are low. It shows strong pricing power and efficient operations.

What is a bad profit margin?

A bad profit margin is usually anything under 5%, as it leaves little room for covering costs or growth. However, what's considered “bad” can vary by industry.

What is the EBITDA margin?

EBITDA margin is the percentage of revenue a business keeps after removing costs like interest, taxes, depreciation, and amortization. It shows how profitable the core operations are.

Lila Le

Marketing Manager at TrueProfit

Lila Le is the Marketing Manager at TrueProfit, with a deep understanding of the Shopify ecosystem and a proven track record in dropshipping. She combines hands-on selling experience with marketing expertise to help Shopify merchants scale smarter—through clear positioning, profit-first strategies, and high-converting campaigns.

What Is A Good Profit Margin For A Small Business? (2025)

What Is a Good Profit Margin for Small Business?

Average Small Business Profit Margin by Industry