Benchmarks: How Your Numbers Compare to Businesses Like Yours

Short Answer: IRS data for tax year 2023 shows US sole proprietors kept about 18% of their revenue as net income across all nonfarm industries, before paying themselves. It ranges from about 3% for restaurants to about 40% for professional services. To compare fairly, put your profit on the same basis (before owner pay), compare against the narrowest group of businesses your size, and lean on ratios like gross margin by service, which owner-pay choices don't bend.

"Is my margin good?" is one of the first questions owners ask once they can read a profit and loss statement. The honest answer starts with another question: good compared to whom? Most published averages mix one-person side businesses with ten-person companies, and count owner pay differently from how your books do. The method below gets you a comparison you can act on.

What Do Industry Averages Actually Say?

The most complete free source is the IRS's Statistics of Income program, which tabulates every Schedule C filed by sole proprietors (including single-member LLCs taxed as sole proprietorships). For tax year 2023:

Source: IRS Statistics of Income, Nonfarm Sole Proprietorships, Table 1, Tax Year 2023. Net income is total net income less losses, divided by total business receipts.

Two things in this table matter more than any single percentage. Schedule C net income is before the owner pays themselves, because a sole proprietor's pay isn't a deduction. And these are totals across every return in the group, including the 31% of all sole proprietors who showed no profit.

Step 1: Put Your Profit on the Same Basis

Before comparing, make sure your number and the benchmark measure the same thing.

• If the benchmark is sole-proprietor data, use your profit before any owner pay or draws.
• If your business is an S-Corp paying you a salary, add the salary back before comparing to sole-proprietor figures. Data built from corporate returns will already have subtracted officer pay.
• Tax returns often front-load equipment costs through faster depreciation. A year when you bought a truck can show a lower margin than the business really earned.

Take a hypothetical landscaping company, Greenline Landscaping: one owner, a crew of four, about $520,000 a year in revenue, run as a single-member LLC. It makes $114,000 before paying the owner, about 22% of revenue. That's the figure to hold against the table.

Step 2: Pick the Narrowest Comparable Group, and Check Who's In It

Landscaping falls under administrative and support services in the IRS table, at 21.2%. Greenline's 22% looks right on the average. Then look at the last column: the average business in that group took in $36,687. Greenline is fourteen times that size.

The payroll figures in the same IRS table show why that matters. Across administrative and support services, payroll (including labor counted in the cost of the work) came to about 11% of revenue. At Greenline, crew wages alone are about 38% of revenue. Most of the group is one person working alone, with no crew to pay, so its margin describes a different business. A crew-based company like Greenline might sit closer to the specialty trade contractors, at 15.7%, whose average business is larger and more likely to carry payroll. Even that group is a loose fit.

The pattern holds for almost any published average: find out who's in the group before you trust the number. Trade associations and lenders' datasets often split results by revenue size, and a size band close to yours is worth more than an industry match.

Step 3: Compare Ratios That Owner Pay Can't Distort

Profit margin moves with choices that have nothing to do with how well the business runs: how the owner is paid, how equipment is depreciated, whether a family member is on payroll. Some ratios are steadier:

• Gross margin: what's left of each sales dollar after the direct cost of the work. Greenline's is about 36%.
• Overhead as a share of revenue: Greenline's $73,200 of fixed overhead is about 14%.
• Direct labor as a share of revenue: crew wages at about 38%.

These tell you where a gap comes from. A margin below your peers with a normal gross margin points at overhead. A low gross margin points at pricing or crew productivity.

Step 4: Benchmark Against Yourself

The most useful comparison is usually inside your own books: this year against last year, and each service line against the others. Greenline's three lines look like this:

Residential mowing brings in almost a third of revenue at little more than half the margin of the other two lines. No industry table would have shown that, and it's the finding Greenline's owner can act on: raise mowing prices, change route density, or shift the mix toward contracts and installs.

What to Look For

• A gap of five points or more against a well-matched group. Smaller differences are often accounting choices. Larger ones usually have a cause worth finding.
• Your own trend. A margin two points lower than last year says more than one two points below an industry average.
• The weakest line in your mix. A single low-margin service can pull a healthy business toward the bottom of any table.

What a Finance Consultant Would Do Next

A consultant looking at Greenline would set the industry average aside quickly and work from the service lines: what a mowing price increase does to profit if a share of clients leave, whether denser routes lift the mowing margin, and how the mix would look with two more commercial contracts in place of the lowest-margin residential routes.

That analysis is what Occam's Model runs on your own books. It grades your business on revenue, margins, marketing and financial stability, with detailed scores and benchmarks on the paid plans, and treats anything you haven't entered as missing rather than counting it as zero. Then it lets you test a price or cost change on a copy of your numbers before you make it. When you need extra help, an expert can review it with you.

Common Questions

What is a good profit margin for a small business?
It depends heavily on the industry. IRS data for 2023 puts sole proprietors at about 18% of revenue before owner pay across all industries, from about 3% for restaurants to about 40% for professional services. Compare against businesses your size in your trade.

Does the average profit margin include the owner's salary?
For sole-proprietor data, no. Schedule C net income is before the owner pays themselves, so compare it with your profit before owner pay.

Where can I find benchmarks for my industry?
The IRS Statistics of Income tables are free and cover every industry. Trade associations and lenders often publish more detailed figures by business size, some of them paid.

Why is my margin lower than the industry average?
Check the basis first: owner pay, depreciation and business size all move the number. If the gap survives that, compare gross margin and overhead to see which side of the business it comes from.