What Is a Good Profit Margin for a Product?

How Do You Calculate Profit Margin on a Product?

A product’s gross margin is its price minus the direct cost of making or delivering it, divided by the price. Net margin is a company figure (net profit divided by total revenue, after overhead, interest and tax), so for one product, gross margin is the number to work with.

1. Start with what customers paid, after discounts and rebates, rather than the list price.
2. Take off returns and refunds, because a product that comes back didn’t earn its margin, and are product returns calculated in profit margins covers the other costs a return creates.
3. Subtract the direct cost of making or delivering it, meaning the materials and the labor that go into it. Freight, payment fees and commissions also rise with each sale, and taking them out too gives you contribution margin.
4. Divide what’s left (the gross profit) by the net price to get the gross margin as a percentage.
5. Leave shared overhead out, such as rent and the finance team, since spreading it across products by revenue makes every product look alike.

Markup and margin get mixed up often, and confusing them leads to underpricing. Markup divides the gross profit by the cost, while margin divides it by the price, so the same sale always shows a higher markup than margin.

The profit-per-customer calculator on our IMPACT Offering page takes gross margin as one input, alongside the average sale and what it costs to win a customer, which is where the next sections go.

What Are Typical Profit Margins by Industry?

Typical profit margins vary enormously by industry, which is why one “good” figure can’t be right for every product. Across publicly traded US companies in January 2026, gross margin was about 15.5% in engineering and construction and about 72% in system and application software, while the whole market outside financial firms averaged 34.4% gross and 8.6% net.¹

The most reliable free benchmark we know is the margins dataset that Aswath Damodaran of NYU’s Stern School of Business updates every January. Here is a selection of industries from it.¹

Apparel shows why gross margin alone can mislead, because those companies keep 56.9% of each sale after the cost of the goods, but selling, general and administrative costs take 47.6% of sales, and net margin ends up at 3.9%.¹ We see the same pattern inside single companies, where the gross margin on a product says little about what it costs to sell or how often customers come back.

Use the table as a rough yardstick and know its limits before you quote it in a meeting:

• It covers public companies, which are mostly far larger than the businesses comparing themselves to it, and the figures for each industry are built from the companies’ combined sales and income, so the biggest companies weigh the most.¹
• The figures are company-wide, so they mix every product a company sells, and one product line can sit well above or below its industry’s figure.
• The period is the twelve months to the third quarter of 2025, and the dataset is refreshed each January.¹

How Much Profit Should You Make on a Product?

Enough gross profit from each customer to cover what it costs to win and serve them and still leave a profit you’re happy to grow. How much that is depends on three things the margin percentage doesn’t show.

• Your industry, which sets what buyers expect to pay and what delivery costs, so a food wholesaler and a software company can both be well run at margins far apart.
• What it costs to win and serve a customer for that product, since a product that needs a long sales cycle, several meetings and a large ad budget for each customer can earn less than a lower-margin product people buy on their own.
• Repeat and follow-on purchases, because a modest margin earned every year for a decade can be worth far more than a high margin earned once, and so can a product that opens the door to a larger sale.

Put those together and the useful measure is gross profit per customer after the cost of winning them: the average sale, times the gross margin, times the number of times a customer buys, minus what it costs to win one. We explain that calculation step by step in how to calculate the profitability of a customer.

What you can afford to spend winning a customer also has no fixed rule, because it depends on how much profit a customer brings over the relationship, how much arrives early, your cash flow and how fast you’re trying to grow.

Is the Product With the Highest Margin the One to Grow?

Not automatically, because the product with the best margin can cost the most to sell and bring the least repeat business. Compare products on profit per customer after the cost to win, and the order often changes.

So the contractor builds its marketing around maintenance agreements, because they’re cheap to win, renew for years and feed the installation pipeline on their own, with no extra marketing cost for those installations. Installations stay a strong offering, and nobody stops selling emergency repair, but neither is where the next marketing dollar earns the most. Our IMPACT Offering page walks through the full comparison, scoring margin alongside five other lenses, to find the offering worth growing.

When Is a Low Profit Margin Still Worth It?

A low-margin product is worth keeping when it brings in customers who go on to buy something more profitable, or when it costs so little to sell that the profit per customer still holds up. It’s a problem when it’s also the product your marketing sells the most of, because more volume then buys more thin sales.

Marketing tends to sell whatever is easiest to sell, which is often the cheapest or most discounted product, so a company can raise its budget and see revenue rise while profit barely moves. Before you change anything, check which products your marketing has been selling and what each earns per customer.

When a product’s margin is too thin, these are the moves, roughly in the order we’d try them:

• Stop discounting it to close deals, since a product that only sells at a discount is telling you something about its price or its competition.
• Raise the price for the buyers who value it most, and accept losing some buyers who only came for the price.
• Lower the cost to win customers for it, by aiming marketing at buyers who are more likely to buy it again or buy more.
• Package it with follow-on work, so the first sale leads to the more profitable one, the way the contractor’s maintenance agreements lead to installations.
• Reduce the direct cost of delivering it, through suppliers, materials or how the work is done.
• Stop marketing it, while still selling it to customers who ask, if none of the above moves it.