What Is a Healthy Net Profit Margin for a $1.5M Business?
For most established businesses, a healthy net profit margin sits between 10% and 20%.
The all-industry average is around 9.7%, so if you are above 10% you are doing well, and if you are clearing 15% to 20% you are running a strong, healthy business.
On $1.5 million in revenue, a 10% net margin is $150,000 in real profit, and a 15% margin is $225,000. But the honest answer is that the right number depends heavily on your industry, and I am going to show you exactly where yours should sit.
Let me walk you through it properly, because this is the number that tells you whether your business is actually working, or just busy.
First, let us agree on what we are measuring
There are three profit margins, and owners mix them up all the time, which leads to a lot of false comfort.
Gross margin is what is left after the direct cost of the thing you sold. Operating margin is what is left after you also pay your running costs, the rent, the wages, the marketing. Net margin is what is left after absolutely everything, including interest and tax. Net margin is the one that matters most here, because it is the money that actually ends up as profit. It is the real bottom line.
You can have a healthy gross margin and a terrible net margin. That is the trap. The gap between the two is where your business is leaking, and a Business Analysis spends a lot of its time in exactly that gap.
The benchmark, with real data
Here is where the numbers come from, so you can trust them.
The most cited source for this is the NYU Stern database maintained by Professor Aswath Damodaran, updated in January 2026 from roughly 6,000 US companies. According to that data, the total US market averages about 37.8% gross margin, 12.8% operating margin, and 9.7% net margin.
So when someone asks me what a healthy net profit margin is, the plain answer is this. The average across all industries is just under 10%. Beancount, summarising the same Damodaran data, puts the all-industry net margin at around 9 to 10%. Above 10% net, you are above average. In the 15 to 20% range, you are running a genuinely healthy business. Below 5%, you are fragile, and one bad quarter or one cost rise can wipe you out.
On a $1.5 million business, here is what those percentages actually mean in your pocket:
5% net margin is $75,000 profit. Survival territory. You are working very hard for very little.10% net margin is $150,000 profit. Healthy. You are above the all-industry average.15% net margin is $225,000 profit. Strong. You have room to invest, pay yourself properly, and build a buffer.20% net margin is $300,000 profit. Excellent, and usually a sign of real pricing power or a tight niche.
I give you the dollar figures because a percentage on its own is too easy to wave away. $75,000 versus $225,000 on the same revenue is the difference between a business that traps you and one that pays you.
Your industry changes everything
Now here is the part most people skip, and it is the most important part. The all-industry average hides enormous variation. A 5% net margin might be excellent in one industry and a warning sign in another.
Based on the Damodaran 2026 data and industry reporting, here is roughly how it breaks down:
Software and SaaS run very high gross margins, 70% and up, because selling one more copy costs almost nothing. Net margins are strong once they reach scale.
Retail is a volume game with thin margins. Grocery stores average around 1% net. They make money by moving enormous quantities. If you run retail and hit 5 to 6% net, you are doing well.
Restaurants are one of the hardest businesses to make work. Food costs run 28 to 35% of revenue and labour another 25 to 35%, so net margins are typically in the low single digits to high single digits. And in 2025, food and labour costs in restaurants were running roughly 35% above 2019 levels, which has squeezed everyone.
Professional and service businesses sit higher, often in the 15 to 20% net range when run well, because the cost of delivery is mostly time rather than materials.
So before you panic or celebrate about your number, find the benchmark for your industry, not the average for everyone. A 6% net margin in groceries is a win. A 6% net margin in a professional services firm means something is wrong.
The thing the data will not tell you
Here is a line I read recently that I wish I had written. From The Margin Calculator: a business can be busy, growing, and still slowly going broke, if the owner does not know what margin they are actually operating at.
I have seen this so many times. Revenue is up, the phone is ringing, everyone looks busy, and the owner assumes that means they are winning. Then you look at the net margin and it has quietly slipped from 12% to 4%, because costs crept up and prices did not move with them. The business is busier than ever and making less money than it did two years ago.
When I ran Aquaduck, the number I cared about most was not revenue. It was profit per passenger. I knew it down to the dollar, because I knew that growing passenger numbers while net profit per passenger fell was just running faster to stand still. When I got the pricing and the costs right, net profit per passenger more than doubled. Same boats. Same tours. A completely different business underneath, because the margin was right.
Revenue is vanity. Margin is sanity. Know your net margin, by industry, and track it monthly, not once a year when your accountant tells you.
How to actually lift your net margin
If your number is below where it should be for your industry, the good news is that net margin responds fast to small changes, because it is so leveraged. A small move on price or cost shows up multiplied at the bottom line.
The levers, in the order I usually look at them:
Price. The most powerful lever and the one owners are most scared to touch. If your costs have risen and your prices have not, your margin is shrinking silently.
Cost of delivery. What does it genuinely cost you to deliver one unit of what you sell, including the hidden bits. Most owners underestimate this.
The leaks. The discount applied without asking, the supplier contract not renegotiated, the subscription still charging for a tool no one uses.
Mix. Some of what you sell is far more profitable than the rest. Often the busiest line is not the best one.
This is exactly the work a Business Analysis does. It finds the gap between your gross and your net, works out which lever moves your number fastest, and puts the fixes in the right order. You do not guess. You look, then you act.
The short version
A healthy net profit margin for most businesses is 10% to 20%. The all-industry average is about 9.7%, per the NYU Stern Damodaran data, January 2026.
On a $1.5M business: 10% net is $150,000 profit, 15% is $225,000, 20% is $300,000. Below 5% ($75,000) you are fragile.
Net margin is the real bottom line. Do not take comfort from a healthy gross margin while your net is thin.
Your industry sets the bar. 6% net is excellent in groceries and a red flag in professional services. Benchmark against your sector, not the average.
Margin is leveraged. Small moves on price and cost show up multiplied at the bottom line.
For me, the businesses that quietly fail are not the ones with no revenue. They are the ones where the owner watched the top line and never watched the margin, until it was nearly gone.
If you want to know what your net margin should be for your industry, and how to lift it, the starting point is a Business Analysis. Speak to Sarah today at sarahcolgate.com.au.
For more, read Why Sales Growth Without Margin Is a Red Flag, Why Busy Businesses Still Struggle With Profit, and How to Identify Profit Leaks in Your Business.