In your opinion what is a "fair" profit margin for private business?

I read a lot of posts here making statements that this industry or that industry doesn't "deserve"
to make the profits they make, so I am curious, as someone responsible to my superiors to make a profit, what kind of percentage you feel is reasonable for businesses to make. I realize that things like health care and the energy industry should be willing to take a smaller profit margin due to the necessity of the product or service they supply, but curious as to what kind of profit margin in general is deemed to be "fair". Please specify net profit vs gross profit when replying. My company averages around 8% net and employs around 500 people. Wages are not great but are reasonable for the area and skill set required to do the jobs.

are provided with good benefits. That's they way my law firm worked. It was not a sweat shop and the firm paid 100% of health benefits. I don't think there should be a limit as long as people are treated decently.

My little business tried for 10% during good times, and just barely break even now.

:popcorn:

Why not do it in the other thread? The context there was the banking industry which is currently receiving hundreds of billions of dollars in government bailout money. And yet they can't afford to give us lower interest rates on home loans... why exactly?

All I'm trying to do is refinance my mortgage to save a little bit of money each month. I was all set to do so, and would have been paying $8000 in closing costs, when suddenly rates went up and I missed out.

You're telling me that a bank can't make a profit by charging me $8000 up front and earning 5% interest off of my loan? 4% profit isn't enough for the banking industry during a DEPRESSION that they helped cause?

had i wanted to call you out i would have done so in the other thread. I only referenced your post in response to a request for a link and meant nothing toward you or your post and did not reference it at all in my op. Your comment was merely a catalyst for thought which is why i did not post this in the other thread.

:rofl:

Some businesses like restaurants can't survive on less than a 150% markup over product because they have a high overhead for location, services and licenses needed to operate. Other business who can get by with few employees and cheap rent can probably do fine with 10% markup over product.

my company has a break even point of 40% over cost for products with a net (after taxes) profit of less than 10%.

projected profit. I say projected because there might be many reasons you don't make a profit and break even or even post a loss.

Another element is turnover.

A supermarket turns over its inventory 50 times a year. 2% * 50.

A jewelry store may turn over ONCE a year. 100% * 1 = 100%.

Turnover is the element which puts markup in perspective when looking at profits.

credit, which affects cost.

Some businesses don't really have that much RISK, like the ELECTRIC COMPANY. Others, like your restaurant example, might be empty next week.

There is no simple formula, but basically these conversations refer to businesses with low risk but expect high profits.

for two years right out of college

Probably 100 or so locations across the country

the owner had a profit sharing deal-give him 14% Return on Investment (ROI) and the rest is divied up by each branch manager as he/she sees fit. The manager took 40% (that was the standard). The owner was printing money-not that he needed it to start with.

My problem is not that profits are huge, it's that the "profits" only exist because current regulations force the rest of us to bear a lot of the business's costs. If a guy can find a way to make money without damaging society or the environment, I don't see any limit to the "fair" profit margin then.

I don't think any business should profit from the misery of it's work force, i.e Wal-Mart. Figuring out how to balance the need to be profitable with the responsibility to treat your employees fairly is never an easy thing to do.

There's a need to break even, which is something most companies aren't letting their employees and neighbors do. If, on top of that, you can be profitable, that's icing on the cake.

for a willingness to risk capitol to start a business.

Repaying bondholders should be a capital expense rather than a direct diversion of profit. So should basically all R&D and re-investment. Actually this may be a big part of the problem: what our accounting rules consider fair game as "profit".

profits are theft of earned income from the consumer.

make anything above the cost of doing business? what would the incentive be to risk capitol to start a new business if there is no way to earn a return on the investment of your time and money?

dependent upon banks.

The problem we have now is that the monopolies and big banks are working with govt against citizens.

I have seen no change in this since Dems took over Congress or since Obama got into office.

Wow, just wow.

:rofl:

law.

I don't think health care and energy should be limited either unless government has given them monopolies or virtual monopolies.--which assures them a risk-free profit.

Truly essential industries, like basic health care should be govt funded, like fire and police.

If ten enterprises invest $1 MILLION in the same field and 9 of them loose everything within 2 years. The one succesfull buisness would be fair at $10 Million + 10% over two years minus $1 million initial investment. Which comes to $11,100,000 total profit in those two years.

However is all ten are still in buisiness then it's $210,000 total profit in the same two years.

The only caveat would be that my feelings on that applies only to competitive industries. With certain products such as gasoline, where the consumer is basically fucked and has to pay whatever the price is, there should be a cap. But for regular old product purchasing I say the supply and demand model is fine, and a company should be free to try and take in as much profit as possible while adhering to regulations such as safety, labor and environmental etc.

their margins are usually between 8% and 10%, which in reality is not extreme. The issue with them is that the amount of product sold is huge so the dollars are huge as well.

and other laws are not broken.

When I post (on other sites) that our country needs decent family wage jobs, meaning jobs that can pay a mortgage, buy food, buy health care, save for retirement and send your children to college, I get told over and over again that "companies don't owe me anything, and the country is dying from "entitlements".

FFF that. If asking for a good paying job is an "entitlement", and re-distribution of wealth is only considered an evil when the money is spread via JOBS that pay well, and not an evil when I can't afford health care, and health care executives are making millions in salary and bonus's, for one random example, than America might just as well admit what it is, a third world, two class society well on its way to irrelevance.

All we freaking want are decent paying jobs.

should be strictly nonprofit.

If it is not necessity, then, as long as the employees benefit proportionately, whatever the market will bear.

If the price is set too high, very few will buy and the market will decline until the price is reset.

where do you come up with a 10% or less "always being the standard? based on reported numbers the oil companies all come in below 10%.

I'll look around when I get time, but I think it's almost Bibical ---

like the "Jubilee" which few understand. In fact, the Native Americans had a

tradition of "Potlatch"/? which was similar.

You gave it all back to the community -- whatever your profits were.

In the Jubilee, after 50 years? Potlatch I think was a continuing tradiiton of sharing.

As far as the oil industry --- they've made profits of at least $36 BILLION a year.

How could that be 10%????

Especially that corporations are paying almost less in taxes than individuals are paying --

considering loop holes -- sometimes as little as 8% over decades!!!

We need to restore progressive taxes on corporations to levels we had in 1950's ....

Meanwhile, we need to NATIONALIZE the oil industry and our other natural resources ---

they belong to the many, not the few.


Digg - Exxon Mobil Corp. Posts the Largest Annual Profit in US History ...
Also, they are only operating on a 10% profit margin... It's about how much PROFIT they made above and beyond those expenses. The answer is A LOT. ...
digg.com/business_finance/Exxon_Mobil_Corp_Posts_the_Largest_Annual_Profit... - 96k - Cached

some may be in the10% to 11% range but industry average, from what I understand, is around 8.5% when your revenues are $400 billion a year even a meager 5% profit margin nets you $20 billion.

in fact that was the 1960 Democratic Platform which JFK ran on ---

The point is that even if $36 BILLION was even only 1% profit -- natural resources

shouldn't be privatized.

There was also a great deal of hidden speculation which was involved in those profits--

floating oil to create shortages!

We need to stop burning fossil fuels -- ASAP.


We should also have a "Windfall Profits Tax" on their earnings over the last years

of crushingly high gasoline prices.


And, we probably should be assessing on all corporations a "damage to the planet" tax.

How much is the planet worth, again?

Let's say I invent a product that makes life easier/more enjoyable for many people, and I start a company to sell that product. The product only costs me ten dollars apiece to manufacture (after overhead & expenses). Let's also say that I treat my employees fairly, I have not stolen anyone else's ideas, and I comply with all applicable environmental laws. Now let's say that because people like my product so much, they are willing to pay me $20 apiece for it. Why the hell should I not be allowed to make a 100% profit if the market will bear it?

are well paid and the business pays its share of taxes, private business should be free to make as much money as it can.

Paying taxes is what too many businesses don't do.

by the owners or shareholders.

Lots of good answers here. One_Life_To_Give has an interesting formula there, but I'm not sure how one would apply it to certain industries/businesses.

ZERO says "everybody" because profits are a theft of earned income from the consumer. I wonder who forced "everybody" to buy his computer so they could steal his earned income.

A lot of it has to do with whether your product is in demand and how long it might stay in demand. A startup that required high investment costs and only had a short lifespan for generating enough income to be profitable would certainly expect a much higher net profit per year for its brief life than a business that had the potential for many years of profitable existence.

What I find when non-business people talk about profit is that many of them confuse sales or revenue with net profit. When I have clients who are not business people I always try to explain to them how the cost of goods has to include enough markup to cover our costs (including benefits, having an office, paying for insurance, paying wages, etc. etc.) plus allow us to make a profit. They usually are receptive to the explanation.

you obviously understand business and what "profit" really is.

What's "fair" is determined by the market, depending on how good of an idea the business has and how well it's accepted by its customers.

For example, ideally the profit on arms making should be zero. In fact, it should lose you money to make arms. I would hope that could be made possible by international treaty.

On cocaine, too, the lowest possible profit margin would be good, which is why decriminalization and control as a pharmaceutical is the right way to go.

I'd love to hear that the profit on advertising sugar treats to children had been taxed into non-existence. Wouldn't you? Fuck them and their "right to do business."

In the health care industry, I'd hope the profit went to the providers, and no longer to the insurance companies, which increasingly play the role of profit-takers eating whatever surplus is produced by overturning doctors' diagnoses and prescriptions by way of telephonic examinations. Or by ping-ponging claims amongst each other. I'd love to see single-payer universal like in all those countries with better and less expensive health care. Wouldn't you?

In IT, it still kind of blows my mind that Microsoft through its sneaky DOS for PC deal with IBM figured out how to pull down the biggest share of the profit for what was analogous to the car's transmission. That was amazing. A true highlight for the free market.


EDIT: D'oh! Given recent events, how could I forget the best one.

You tell me: What should the profit margin of a bank be? Should there be any limit to how high the adjustable interest rate can go?

I think adjustable rate mortgages are the biggest scam there is. If all home loans were fixed between 4% for those with fantastic credit ratings and 10% for those who just barley qualify for the loan I would consider that reasonable. Risk is a big factor in determining what a "fair" interest rate should be. It is also a big factor in what a reasonable profit margin is for any other business. Risk along with market demand and supply should be the driving forces to determine a fair and reasonable profit margin for private business.

A 50% profit margin making fluffy teddy bears is fair and "deserved". A 1% profit margin selling baby poison is not. But hey, it's easy to call somebody out, take their comment out of context and try to see everything in a black and white way isn't it?

I'll stand by what I said on the other thread, that the banking industry does not deserve to be making any profits right now after what they've done. The government needs to be setting the terms and conditions under which they can operate and if they can make a profit after that, good for them. But I'm not losing any sleep if bank shareholders have some tough years ahead of them.

I don't see everything in black and white. Your comment just got me to thinking about the issue. I think the corporate banks have shown themselves to be just centers for greed and corruption. I personally bank at a small, locally owned bank. To me the bigger question is what is a "deserved" vs an "undeserved" profit, and who determines which is which? To say all profit is deserved is as disingenuous as saying no profit is deserved. I am just very curious how average people view business profits.

It was just kind of strange. I read the O.P. and the thing about "deserved" and I thought "hmm, I posted something like that recently... nah, couldn't be" and then a few posts down you linked to my post!

as someone posted here supporting my op

it takes materials & pays workers to make something out of them.

then the workers & the owner buy back what they made.

try to explain where the profit is in a one-firm economy, & you'll see where it comes from in a multi-firm economy.

as long as the market is regulated and no monopolies exist. If they are making too much money, then competition will swarm in and knock the profit down a bit!

Good on you!

Plus oil depletion allowances and many other considerations for the industry.

Capitalism isn't about competition -- it's about killing the competition.

And in the case of public utilities and other monopoly enterprises, the cost to the consumer.

costs. So defining a "fair" margin is irrelevant.

Relevant is Health Insurance companies add nothing to improve your care. Their job is to make as much money as possible which requires giving you as little care as possible. This is where people see any profit as obscene. No reason for it, there is a reason NOT ONE industrialized country allows this but the U.S.

Now for other businesses playing by the rules, paying their taxes, etc. make a profit providing a service people need, so be it.