Low Profit Margins Do Not Always Mean Low Profits

A survey conducted by the financial information company Sageworks revealed US industries with the lowest profit margins over the past 12 months. The company examined over 1,000 industries and discovered that the vast majority of sectors are showing positive profit margins, while the most profitable industries have two digit margins.

Profit margins are a good indicator of an industry’s strength. The larger the profit a company makes per dollar of sales that it generates is an indicator of how efficient the company is and how it will continue as it grows. A large profit margin also acts as a cushion when sales decline. Therefore profit margin is an excellent metric for examining the success of a company.

Only one of the industries that Sageworks examined posted a negative profit margin, the continuing care retirement communities and assisted living facilities. In the 12 months ending on July 1, 2014 this industry showed a minus 1 percent margin.

The 15  least profitable industries showing margins below 2 percent included:

•    Office supplies, stationary and gift stores
•    Appliance and electronic retail outlets
•    Liquor stores
•    Car parts, tires and accessories
•    Gas stations

Libby Bierman, and analyst for Sageworks explained that low profit margins don’t necessarily meant that the business is not profitable. Some companies make up their low profit margins with higher sales volumes.

“A lot of the businesses you see on our list are retail businesses, and how many of them make money is largely based on volume through their store, so maybe on each Coke they sell they’re not making loads of profit, but they’re selling enough Cokes to make enough of a profit to make a living,” she said. “A lot of these retailers are focused on getting foot traffic into the stores or selling a lot of units, and these profit margins show why that’s important to them.”

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