What Is a Good Profit Margin Percentage for Small Businesses?

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The profit margin of a dentist remains stable because of benefits and health care.
The profit margin of a dentist remains stable because of benefits and health care. (Image: BananaStock/BananaStock/Getty Images)

A business strives for a good profit margin in comparison to its industry's standards. This can be achieved by employing strategies to boost income and lower costs. Certain industries have the advantage of low overhead, which helps to keep profit margins high. Profit margin is calculated as the net income divided by revenues. If the retail price is $10 and cost is $7, the profit is $3. $3 divided by $10 gives you a profit margin of 30 percent.

Professional Services

Accounting, tax preparation, bookkeeping and payroll services have the highest net profit margin — approximately 18 percent, according to "Bloomberg Businessweek" — with gross profit margin generally expected at about 67 percent. With professional services, the cost of sales is low; the only major cost is labor. If your gross margin is lower than the industry standard, you can consider replacing a salaried employee with a contractor so that a person is paid only for the time he is working.

Dentists

"Bloomberg Businessweek" shows that dentists generate the next highest profit margin after professional services, at approximately 17 percent. The dental industry remains profitable even through a recession. In an uncertain economic environment, an employee takes advantage of employment benefits like dental coverage while she can. Dentists also find that those who skip appointments find themselves back in the dentist's chair with more serious problems later on. Either way, the dentist wins.

Legal Services

Legal services are next on the scale of businesses with good profit margins, at approximately 16 percent, according to the "Bloomberg Businessweek" report. The larger a company's profits, the greater its budget for legal services. High-tech, innovative, intellectual-based companies have lower costs and higher revenues. For this type of company, legal services are a priority to protect their product.

Health Practitioners

Fourth on the profit margin scale is the health practitioner business, at a net profit margin of approximately 16 percent. Health practitioners include chiropractors, optometrists, and mental health practitioners. A practitioner receives payments by assigning codes to medical claims and billing insurance companies. Rejections, resubmissions, and inaccurate codes lower a practitioner's profit margin. Practitioners, therefore, use medical billing companies knowledgeable in billing codes and processing to help expedite claims and keep profit margins steady.

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