Revenue growth is easy to celebrate. Margin is harder to talk about because it forces you to confront your costs. But a business with 3% net margin is one bad month away from insolvency, no matter what the top line looks like.
Different industries have fundamentally different cost structures, and what counts as a "good" margin in one sector would be catastrophic in another. Context is everything.
Gross vs Net Margin — What You're Actually Measuring
Measures how much money is left after direct production costs — raw materials, direct labour, shipping. It ignores rent, salaries of non-production staff, marketing, etc. High gross margin = scalable model.
Measures what's actually left after every cost — COGS, overheads, salaries, rent, software, marketing, interest, taxes. This is the number that determines whether you're building wealth or just busy.
A business can have 70% gross margin and 3% net margin. This usually means overheads are eating all the gross profit — too many staff, too much office space, too high a marketing spend relative to revenue.
Profit Margin Benchmarks by Industry
These ranges are based on publicly available industry data and SMB benchmarks. They represent typical ranges for established, profitable businesses — not startups burning cash.
| Industry | Gross Margin | Net Margin | Why |
|---|---|---|---|
| SaaS / Software | 70–85% | 15–30% | Low COGS, high S&M spend |
| Consulting / Agency | 50–70% | 15–25% | Labour-intensive, low materials |
| E-commerce | 20–40% | 5–15% | COGS + shipping + returns |
| Restaurant | 60–70% gross | 3–9% net | Labour + food waste + rent |
| Cleaning Business | 40–60% | 20–35% | Labour + supplies, low capex |
| SaaS Product (bootstrapped) | 80–90% | 10–25% | Infrastructure costs scale slowly |
| Manufacturing | 25–45% | 5–15% | Materials + machinery depreciation |
The cleaning business stands out: relatively low gross margin (lots of labour) but surprisingly healthy net margin because overheads are minimal. No rent for an office, no software subscriptions, no content marketing. Sometimes boring wins.
Why High Revenue ≠ High Profit
This is one of the most common misunderstandings in small business. Revenue is an input to profit — it's not profit itself. Two businesses at £500K/year can have wildly different outcomes:
Same revenue. The agency owner takes home £110K. The restaurant owner takes home £45K and has significantly more stress, staff, and risk. Neither is wrong — but you should know which game you're playing.
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Margin improvement comes from six levers. Most businesses only pull one — usually cutting costs. The best businesses pull all six.
A 10% price increase on the same revenue base = ~10% more gross profit with no extra effort. Most businesses undercharge because they're afraid. Test it — you'll lose fewer customers than you think.
Renegotiate supplier contracts. Buy in bulk. Find alternative suppliers. Reduce product/service waste. Every pound off COGS falls straight to gross profit.
Audit every recurring expense. Kill unused software, renegotiate rent, consolidate vendors. Overhead cuts are permanent — unlike revenue growth, they don't reverse if you have a bad month.
Some clients generate revenue but negative profit — they churn through support, demand constant revisions, and consume management time. Firing your bottom 20% of clients often improves net margin significantly.
Convert custom, high-touch work into standardised packages. A productized service has higher margin than bespoke work because you amortize setup costs across many clients.
Every manual process that can be automated is a margin leak. Software that costs £200/month and replaces 5 hours of £30/hr staff time is saving £450/month. ROI in 2 weeks.
Frequently Asked Questions
What is a good profit margin for a small business?
It depends entirely on the industry. For a service business, 20%+ net margin is achievable. For retail or food, 5-10% net is common. The better question is: what is the benchmark for your specific category? Compare within, not across industries.
Is 30% profit margin good?
For most businesses, 30% net margin is excellent — it would put you in the top tier of your industry. SaaS can sustain these margins at scale. Service businesses can achieve this by staying lean. Retail and food rarely get there. Context matters.
What is the difference between gross profit and net profit?
Gross profit = Revenue minus the direct cost of what you sold (materials, direct labour). Net profit = Revenue minus every cost including overheads, rent, salaries, marketing, and taxes. Gross margin is useful for understanding unit economics. Net margin is what determines whether the business is actually profitable.
How do I calculate my profit margin?
Net margin (%) = (Net Profit / Revenue) × 100. For example, if you made £200K revenue and £40K net profit, your margin is 20%. For gross margin: (Revenue − COGS) / Revenue × 100.
▸ CHECK_YOUR_MARGINS
See how your margins stack up
Use the BoringRiches calculators to model revenue, costs, and margins for your business type — live, in the browser.
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