What Industries Have The Highest Profit Rates?

See The Most Profitable Industries in 2016 by Mary Ellen Biery of Forbes. A student asked about profit rates in class recently since this comes up when we cover market structures. For example, we expect firms in perfect competition to earn an average profit rate or rate of return because, if they are above average, more firms enter, driving prices and the profit rate back down. When there is not enough competition, firms can stay above average. Excerpts:

"Which U.S. industries are the most lucrative? The answer depends on how it’s measured, but based on pre-tax net profit margin, the top money-makers include specialty service providers in accounting, law, health care and real estate, according to the latest ranking from Sageworks, a financial information company.

Accounting-related companies (accounting, tax preparation, bookkeeping and payroll service companies) are the most profitable, with net profit amounting to 18.3 percent of sales, on average, based on a financial-statement analysis for privately held companies for the 12 months ended June 30.  Legal services firms and real-estate leasing companies are tied for second and third in profitability, with average net profit margins of 17.4 percent. These industries often make the cut for Sageworks’ annual ranking.


“Some businesses tend to have healthier bottom lines by the very nature of the industries that they operate in,” said Sageworks analyst James Noe. Many of the most profitable industries sell services rather than products, he noted, so their operations don’t require raw materials or other up-front costs that would wind up in the middle of their income statements and eat into the bottom line. “They don’t sell or produce finished goods,” he said. “They don’t make the tractors to sell to farmers or they don’t buy groceries to sell to consumers. In other words, you don’t need plastic to provide an audit for a company; it’s just mostly human capital that’s being utilized, and that lends to a high margin generally.”

Among privately held companies across all industries, the average net profit margin for the 12 months ended June 30 was 7.7 percent. Through its cooperative data model, Sageworks collects and aggregates private-company financial statements from accounting firms, banks and credit unions. Net profit margin has been adjusted to exclude taxes and include owner compensation in excess of their market-rate salaries. These adjustments are commonly made to private-company financials in order to provide a more accurate picture of the companies’ operational performance."

Here is the 2015 list

Here is another good link on profit rates