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Industry Profit Margins:
- Information Systems and Software as a Service: These companies have some of the highest profit margins. The build once, sell many times model keeps costs of goods sold low while allowing companies to charge higher prices.
- Accounting and Bookkeeping Services: Also see strong profit margins around 18.4%. Limited overhead costs and steady demand drive consistent profits.
- Legal Services: Operate with high 17.8% margins. Salary comprises the bulk of expenses, so profitability stays strong.
Most Profitable Businesses:
- Small businesses leveraging the internet and selling specialized, high-demand goods or services achieve the highest profit margins.
- Suitable ratios vary widely between industries. For example, 50% is considered low for financial services, while 45% is exceptionally high for computer hardware companies.
Profitable Industries:
- Top Performers: Accounting services, specialized engineering services, and legal services recur as some of the most profitable. Limited overhead and steady demand drive consistent profits year after year. Information systems and computer systems design also make the list.
- Least Profitable: On the other end, oil and gas extraction ranks as the least profitable industry with an average net margin of -7.6%. Significant capital investments and fluctuating oil prices take a toll on profitability. But even within the same sector, petroleum refining reaches average net margins over 10%.
Conclusion:
- Discovering the most profitable businesses becomes a quest for visionaries. Comparing margins to averages helps determine suitable ratios for specific industries. Profitability varies widely between industries, making industry analysis crucial for success.
