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Know Your Industry: Average Margins

By: Tim Berry

 

Know Your Industry Average Margins

Know your industry. In a recent post here, I wrote that the most common stumbling point I see in multiple business plans is absurdly unrealistic profitability. Specifically …

Most of the business plans I see project profits too high, or profits too early. In the real world, startups choose growth or profits, not both. The plans I see are aiming at angel investment. And for that, the investors win on growth, not profitability. Think about it: If a startup is profitable early on, it doesn’t need investors.

You can’t expect to make the same profits as the industry averages. Every business is unique. But you should still be aware of what’s reasonable, standard, or average. That information is readily available. You can go from there to what’s different in your specific case. I really like this NYU page OPERATING AND NET MARGINS. My thanks to the NYU STERN SCHOOL OF BUSINESS, specifically ASWATH DAMODARAN, who keeps this data up to date and makes it accessible.

Here’s a view of his data, the downloadable Excel file, sorted by EBITDA/Sales:

Or, if you are a LivePlan user, make sure you know about the LivePlan Industry Benchmarks that are built in.

Published: January 7, 2020
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Tim Berry

Tim Berry is co-founder of Have Presence, founder and Chairman of Palo Alto Software, founder of bplans.com, and a co-founder of Borland International. He is author of books and software including LivePlan and Business Plan Pro, The Plan-As-You-Go Business Plan, and Lean Business Planning, published by Motivational Press in 2015. He has a Stanford MBA degree and degrees with honors from the University of Oregon and the University of Notre Dame. He taught starting a business at the University of Oregon for 11 years.

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