The Kickass Entrepreneur
  • About
  • Blog
    • All Blogs
    • Create Wealth (Investing)
    • Entrepreneur Interviews
    • Featured Top Posts
    • Growing Profits
    • Growing Revenues
    • Marketing
    • Positive State of Mind
    • Real Estate Investing
    • Retirement
    • Sales
    • Selling your Business
  • Book
  • Courses
  • Podcast
  • Resources
  • Contact
The Kickass Entrepreneur
Subscribe
The Kickass Entrepreneur
  • About
  • Blog
    • All Blogs
    • Create Wealth (Investing)
    • Entrepreneur Interviews
    • Featured Top Posts
    • Growing Profits
    • Growing Revenues
    • Marketing
    • Positive State of Mind
    • Real Estate Investing
    • Retirement
    • Sales
    • Selling your Business
  • Book
  • Courses
  • Podcast
  • Resources
  • Contact
  • All Blogs
  • Growing Profits

What Is The Average Profit Margin for a Small Business in North America?

  • December 9, 2020
  • 25.2K views
  • 6 minute read
  • Jeff Wiener
Average profit Margin Small Business
Average profit Margin Small Business
Share
Tweet
Share

Much of the stuff I write about on this blog are things I’ve learned, and my entrepreneurial experiences running my business over the last 30 plus years. 

And when you’re running a small business, there’s a lot to learn, and although I went to business school, many of the things I learned in school didn’t prepare me for how to run a small business.

I graduated with multiple entry and mid-level accounting courses.  I understood most accounting terms, but I understood them as someone who studies a textbook. 

From an accounting perspective especially, I rarely made the connection between the ratios and formulas you need to understand and study and the practical application in my small business. 

In school, they prepare you as if you’re reading the income statement for a large business, not a small fledgling business like I was running. Same with the hundreds of ratios you need to understand in order to pass your courses, so when I graduated, I DID understand the terms gross margin, net margin, and profit margin. 

I did NOT understand their importance and application to my business though, in particular, gross margin and profit margin, and as a result, I didn’t track these ratios.

When you’re running a small business, you’re looking to maximize profitability, i.e. how many dollars did you put into your pocket. 

It was only in my later years did I really understand, and more importantly, track these financial ratios, expressed as a percentage. 

And that’s why I write this blog. 

I write this blog so that I can educate other small business owners on the nuances of running a business.  To help them grow revenues, maximize profitability, and ultimately, create wealth.  The business I ran for 27-years, and ultimately sold to private equity for 8-figures in 2017, was extremely profitable. It wasn’t always that way, but, I developed practices over the years, starting in my 5th year in business, which helped to maximize profits, and ultimately, the dollars that ended up in my pocket. 

The Average Profit Margin for a Small Business in North America

Before I dive into the profit margins, let me tell you that I created a course that will teach you how to maximize profits, and use some of the same tricks that I used in my business. How to Turn Your Small Business Into a Profit Machine in 60 Days

One of the most important ratios that a small business owner needs to track is the profit margin.

Why?

At the end of the week, month, and year, the profit margin is the amount of dollars that will find its way into your pocket.

The difference between 3%, and a 17% net profit margin, on revenues of a $1 million company, is the difference between $30,000, and $170,000, or, an additional $140,000 in your pocket. 

*** As an aside, if you’re interested in reading about why I sold my business, you can read that here: My Journey Post Business Sale as I Sail Into a New Harbour. The Next Stage, Entrepreneur Semi-Retirement, and Life Post Business Sale

Net Profit Margin Formula:

The formula for Net Profit Margin:  Net income / Revenue X 100

Using the above example, a company that made $170,000 net profit on revenues of $1 million, will look as follows:

$170,000 / $1,000,000 X 100 = 17,  or 17%.

The simplified income statement looks as follows:

Income Statement

  • Revenue = $1,000,000
  • COGS (Cost of Goods Sold) = $500,000
  • Gross Profit = $500,000
  • Expenses = $330,000
  • Net Profit = $170,000

Now that we’ve got that out of the way, let’s review what the average profit margin is of the average business in North America.  In other words, what percentage of dollars does the average small business put in their pocket every year?

Reason-Rupe did a study in 2013.  They asked 1,003 people, the general public, what they believed the average profit margin was for a small business.  The response was 36%.

In actual fact, the average small business doesn’t make anywhere near 36% net profit margin. It’s much less than that.

So What Is the Average Profit Margin for a Small Business?

The average profit margin is going to vary, of course, from business to business, and from industry to industry.

In a study done by the Government of Canada, titled: SME Operating Performance, and corroborated by the US Govt Small Business Administration survey,  they looked at profits by sector, and the numbers varied big time. For example,

  • Agriculture and Forestry = 8.4%
  • Mining = -16.9%
  • Construction = 4.6%
  • Manufacturing = 2%
  • Wholesale and Retail Trade = 2%
  • Professional and Technical Services = 6.3%

Here’s the chart below:

Average profit Margins by Small Business Sector
Average profit Margins by Small Business Sector

Frankly, the results are somewhat abysmal.

In the blog post I wrote titled: How Much Profit Does the Average Small Business Owner Make a Year? I went through the calculations and determined that the average small business owner makes approximately a 7% average profit margin per year, again, not a very good number.

So, to answer the question:  What is the Average Profit Margin for a Small Business in North America?  The average small business in North America makes a profit margin of approximately 7%.

So, the next and logical question is:

How Do You Increase Profit Margins for Your Small Business:

I wrote a blog post titled:  19 Easy Ways to Increase Profit Margins for Your Small Business

In the blog post, I reviewed a number of creative ways that any business can improve their profit margins, and in turn, improve their profitability.  Remember, if your business’s revenue (net income) is $1 million, and your EBITDA margin is 7%, as per the example I provided above, for every additional percentage you raise your EBITDA margin, your business’s profitability increases by $10,000.

In the blog post, I listed a number of ways to improve profit margins, for example:

  • You can raise the prices of your products. Raising prices will depend on the price elasticity of demand for your product, but, it is an option to consider.
  • You can stop offering product discounts
  • Negotiate better terms with your suppliers. This is potentially an easy one.  I renegotiated terms with one of my suppliers a couple of years ago, and managed to save my company over $180,000 in savings. You can bet that definitely increased my EBITDA margin percentage.

Before you go, here’s another blog post on profitability I think you might enjoy:  How Much Profit Does the Average Small Business Owner Make a Year?

Good luck with your business and wealth-creating journey..

Glossary Terms: Margin Versus Markup

A quick explanation:

What is Margin? Margin is the percentage of dollars that end up in your pocket, income, as a percentage of overall revenue. 

What is Markup? Markup is the amount added to the cost of a product. So, for example, if a product cost $100, and the sale price is $150, then the markup is $50, and when noted as a percentage, the markup is 100 X Profit / Cost, or, in the above example, 100 X $50 / $100, or 50%.

Margin Markup Table:  In order to assess the amount of profit margin your small business is making, it’s important that you track the profit margins on a per-product basis, and for that, you can put your products into a margin markup table, which would look as follows:

Margin Markup Table
Margin Markup Table

Good luck with your small business and wealth-creating journey.

Related Posts:

  • How Much Profit Does the Average Small Business Owner Make a Year in 2021?
  • 5 Steps For Your Small Business Profit Improvement Program and a…
  • Turn Your Small Business Into a Profit Machine in 60 Days
  • 19 Easy Ways to Increase Profit Margins for Your Small Business
  • 5 Business Success Tips That Make For An Outstanding Small Business

If you enjoyed this post, you might also enjoy this one:  Profit Isn’t a Disease. It’s the By-Product of a Well-Run Company. If You’re Not Yet Profitable, Fix It or Get a Job.

And this one: How Do You Know When It’s Time to Sell Your Business? It’s Not All About the Money.

You should also consider subscribing to my blog. I publish one article a week on small business and wealth creation.  You can subscribe here.

Also, I published a book during the summer of 2018, “The Kickass Entrepreneur’s Guide to Investing, Three Simple Steps to Create Massive Wealth with Your Business’s Profits.” It was number 1 on Amazon in both the business and non-fiction sections. You can get a free copy here.

Thank you for your interest in THE KICKASS ENTREPRENEUR'S GUIDE TO INVESTING. Three Simple Steps to Build Massive Wealth with your Business's Profits. Please check your email to confirm the book download. Form: 400529

There was an error submitting your subscription. Please try again.

Related Posts:

  • How Much Profit Does the Average Small Business Owner Make a Year in 2021?
  • 5 Steps For Your Small Business Profit Improvement Program and a…
  • Turn Your Small Business Into a Profit Machine in 60 Days
  • 19 Easy Ways to Increase Profit Margins for Your Small Business
  • 5 Business Success Tips That Make For An Outstanding Small Business
  • 8 Business Challenges Every Small Business Struggles With and How…
Share
Tweet
Share
Jeff Wiener
Jeff Wiener

Jeff sold his company to private equity in 2017 and is now semi-retired. Jeff spends time traveling and with his family, writing this blog, managing his real estate portfolio of apartment buildings,  overseeing his investment portfolio, investigating angel investments, coaching other entrepreneurs, and managing his private equity holdings. Jeff is currently on a couple of boards, one for profit, the other not for profit, and now helps entrepreneurs grow their business, profits, and ultimately, create wealth.

You May Also Like
entrepreneur
View Post
  • All Blogs

How to Become a More Successful Entrepreneur

  • January 15, 2021
  • Monica Serreon
online presence
View Post
  • All Blogs

Targeting Your Online Presence to Other Locations – Easier Than You Think

  • January 14, 2021
  • Monica Serreon
online business
View Post
  • All Blogs

7 Online Businesses Set to Thrive in 2021

  • January 14, 2021
  • Monica Serreon
The Top 1% of Wealth Canada
View Post
  • All Blogs
  • Create Wealth (Investing)

The Top 1% of Wealth Amounts for Canadians in 2021

  • January 8, 2021
  • Jeff Wiener
marketing strategy
View Post
  • All Blogs

4 Ways To Create A Marketing Strategy For Student Small Business

  • January 4, 2021
  • Monica Serreon
young successful entrepreneur
View Post
  • All Blogs

How to Become a Young Successful Entrepreneur

  • December 30, 2020
  • Monica Serreon
pdf files
View Post
  • Growing Profits

Seven Ways on How to Fully Utilize PDF Files

  • December 23, 2020
  • Monica Serreon
Investing in apartment buildings
View Post
  • All Blogs
  • Featured Top Posts
  • Real Estate Investing

How Do You Make Money Investing in Apartment Buildings?

  • December 19, 2020
  • Jeff Wiener

Join 6,472 Entrepreneurs That Get My Business Building and Wealth Creation Posts by Email

I can teach you how to build a successful, profitable business, and turn that into millions in personal wealth.

Thank you for your interest in THE KICKASS ENTREPRENEUR'S GUIDE TO INVESTING. Three Simple Steps to Build Massive Wealth with your Business's Profits. Please check your email to confirm the book download. Form: 400529

There was an error submitting your subscription. Please try again.

We won’t send you spam. Unsubscribe at any time.

Recent Posts
  • entrepreneur 1
    How to Become a More Successful Entrepreneur
    • January 15, 2021
  • workplace 2
    4 Ways to Protect Your Employees in The Workplace
    • January 14, 2021
  • online presence 3
    Targeting Your Online Presence to Other Locations – Easier Than You Think
    • January 14, 2021
  • online business 4
    7 Online Businesses Set to Thrive in 2021
    • January 14, 2021
  • accounting 5
    7 Tips for Boosting Efficiency in Your Accounting Department
    • January 13, 2021
Featured Posts
  • how to become wealthy
    The Entrepreneur’s Secret to How to Become Wealthy and Build a Personal Fortune
  • Sell me this pen, Wolf of Wall Street
    Sell Me This Pen. I Tackle the Wolf of Wall Street Sales Riddle. Do You Know the Right Way to Sell the Pen?
  • what net worth makes you rich?
    What Net Worth Makes You Rich? The Average Net Worth to Make it Into the Top 1% and How to Get There
Categories
  • All Blogs (207)
  • Canadian Financial Products (3)
  • Create Wealth (Investing) (55)
  • Entrepreneur Interviews (9)
  • Featured Post for Main Menu (4)
  • Featured Top Posts (21)
  • Financial and Investment Calculators and Economic Data (12)
  • Growing Profits (18)
  • Growing Revenues (77)
  • Growing Revenues (43)
  • Marketing (14)
  • Positive State of Mind (35)
  • Real Estate Investing (12)
  • Retirement (16)
  • Reviews (6)
  • Sales (6)
  • Sell Me This Pen (3)
  • Selling your Business (15)
  • SEMrush (1)
  • Top Products (1)
  • Uncategorized (38)
Follow us
Author
Jeff Wiener
Jeff Wiener
Jeff sold his company to private equity in 2017 and is now semi-retired. Jeff spends time…

    CHECK OUT MY BLOG, AND SUBSCRIBE

    about
    The Kickass Entrepreneur

    Expand Your Business, Improve Profits, Create Wealth

    Expand your business, improve your profits, and create wealth. Each one of the three can be elusive goals. Follow the right steps, and you, too, can create financial independence. It is possible … you just have to take the right steps.
    NAVIGATION
    • About
    • Blog
      • All Blogs
      • Create Wealth (Investing)
      • Entrepreneur Interviews
      • Featured Top Posts
      • Growing Profits
      • Growing Revenues
      • Marketing
      • Positive State of Mind
      • Real Estate Investing
      • Retirement
      • Sales
      • Selling your Business
    • Book
    • Courses
    • Podcast
    • Resources
    • Contact
    TAGS
    apartment BATNA Business business failure business growth business sale Capitalization Rate CAP Rate cash cash flow Creating Wealth Discipline entrepreneur entrepreneurship excel goal setting Growing Business investing investment real estate M&A marketing Marketing KPIs Mergers and Acquisitions | M&A | Entrepreneur Blog Millionaire millionaire next door mistakes MUR Negotiation Peter Principle Profit profitability real estate retirement revenue Revenues sales sales management scaling business Semi-Retirement Blog | Entrepreneur Blog | Small Business Blog small business Stagnant stocks success Thomas Stanley wealth
    RECENT ARTICLES
    • workplace
      4 Ways to Protect Your Employees in The Workplace
      • January 14, 2021
    • accounting
      7 Tips for Boosting Efficiency in Your Accounting Department
      • January 13, 2021
    • cryptocurrency
      The Value of Trading and Investing in Cryptocurrency
      • January 8, 2021
    • The Top 1% of Wealth Canada
      The Top 1% of Wealth Amounts for Canadians in 2021
      • January 8, 2021
      • One comment
    • remote leader
      Things That Remote Leaders Should Keep in Mind
      • January 1, 2021
    • financial management
      10 Financial Management Tips for Small Businesses
      • December 29, 2020
    The Kickass Entrepreneur
    • About
    • Coaching
    • Book
    • Blog
    • Contact
    • Privacy Policy
    • Terms
    • Disclaimer
    • Facebook
    • LinkedIn

    Input your search keywords and press Enter.