Accounting, tax preparation, bookkeeping and payroll services are collectively amongst the most profitable industries, according to Sageworks, a provider of financial information on privately held companies.
Those services collectively had a net profit margin, on a pre-tax basis, of 19.80 percent. In contrast, legal services had a net profit margin of 17.82 percent, oil and gas extraction had a margin of 16.43 percent, commercial and industrial machinery and equipment rental and leasing netted a profit margin of 16.40 percent, and dentist offices had a net profit margin of 14.89 percent. The data was for the period July 1, 2013 to June 30, 2014.
Across all industries, the net profit margin pre-tax was 6.90 percent this year, compared to 5.90 percent last year.
One of the least profitable industries was office supplies, stationery and gift stores, with a net profit margin of just 0.90 percent.
Accounting professionals and dentists have consistently posted the highest net profits, according to Sageworks, but even death care services (i.e., undertakers and funeral homes) have relatively high profit margins, with 10.70 percent in pre-tax net profits.
“Sageworks has been tracking private-company performance since the early 2000s, and a subset of industries that we usually monitor includes industries that are netting the highest and lowest profit margins,” said Sageworks analyst Libby Bierman. “In our most recent dataset, some of the industries that made it on the list are repeat winners, industries that routinely have high net profit margins relative to other private-company industries. Accounting services, legal services, real estate lessors and agents are often among the most profitable industries, potentially because they are able to operate with lower than average overhead, inventory and equipment. Once they pay for their human capital, most of the remaining revenue can funnel through to the bottom line. Offices of dentists and physicians also benefit because their services are requisite and do not depend on discretionary incomes or buying cycles—their services have pretty constant demand.”
Bierman noted that some industries that are less profitable than average may be suffering due to consumer trends or because their business is one that relies on volume of sales instead of profit per transaction. “Office supply and gift stores or even electronic stores may be less profitable now than in the past due to competition from online sellers,” she said. “Gas stations, on the other hand, have traditionally had low profit margins and instead make money by bringing more people to the pump and increasing volume.”