Jun 06 2019
A given industry’s profit margins, measured as earnings before interest and taxes as a share of total revenue, vary widely across the domestic economy. Various factors both internal and external to the industry can influence its profit performance. Profitability can also differ broadly between operators in any industry, fluctuating in line with varying economies of scale. The following discussion outlines the 10 most profitable US industries, with each generating average margins above 35.0% of revenue.
Finance and insurance
On a percentage basis, operators in the Finance and Insurance sector (IBISWorld report 52) enjoy some of the highest profit margins in the domestic economy. For example, the average profit margin for operators in the Industrial Banks industry (52219) is expected to reach 51.8% of annual revenue in 2019, well above the sector average of 26.6% of revenue. Profit margins for industrial banks are significantly higher than for many commercial banks as industrial banks charge higher interest rates, which generate greater interest income and profit margins. However, as industrial banks issue a variety of loans, each of which yields differing amounts of interest income and fees, variability is common between the profit margins of companies in this industry.
The Trusts & Estates industry (52592) is characterized by a unique cost structure; unlike most industries, its companies face no marketing expenses. Operators in the industry record profit margins after deductions, which include interest expenses, charitable donations, distribution payments and tax payments. The average margin in this industry is anticipated to reach 51.0% of total revenue in 2019, representing the second-highest industry profit margin in the United States. Deductions are expected to comprise the remaining share of revenue.
Profitability for operators in the Stock & Commodity Exchanges industry (52321) relies largely on trade volume and trading fees. Industry companies that arrange trades in commodities and derivatives contracts generally experience higher profit margins than industry firms that arrange trades in stocks. In 2019, the average industry operator’s profit is anticipated to reach 49.5% of total revenue. However, similarly to other industries in the sector, this industry includes significant variability in profit margins between its operators, even among its major players.
The Portfolio Management industry (52321) represents another highly profitable industry in the Finance and Insurance sector. Industry profit performance is primarily supported by strong growth in equity markets, heightened real estate values and favorable trends in household income. In 2019, the average industry profit margin is expected to reach 39.6% of annual revenue. However, industry profit margins have experienced downward pressure in recent years because of reduced service fees charged to clients to manage assets.
The cost structure of operators in the Venture Capital & Principal Trading industry (52391) fluctuates significantly depending on participants' investment activities and the type and size of their asset classes. On average, industry profit margins are expected to total 39.5% of annual revenue in 2019. Profit performance for this industry can be volatile, fluctuating with equity markets and interest and operational expenses. Additionally, operators may endure higher capital gains taxes on their earnings, which can place downward pressure on profitability.
Real estate and rental and leasing
The Real Estate & Rental and Leasing sector (IBISWorld report 53) represents another profitable area of the domestic economy, with sector operators generating an anticipated average margin of 43.9% of revenue in 2019. Operators in the Commercial Leasing industry ( 53112) experience particularly high profit margins, with the average operator’s margin reaching 50.8% of revenue in 2019. Like other industries in the sector, commercial lessors record low operational costs, which support high profit margins. However, cost structure varies widely across the smaller, privately owned industry participants that form the majority of the market, particularly in regard to interest and mortgage expenses, maintenance costs and profit margins.
The Land Leasing industry (53119) has a unique market position in the domestic economy, with operators engaged in leasing real estate that does not include permanent buildings. Average profit margins are expected to account for 46.5% of industry revenue in 2019, above the sector average. Industry profit performance can vary depending on the size of operators, as the largest players in this industry typically generate lower margins due to expansion costs and heightened depreciation charges. Conversely, smaller lessors that focus on existing operations incur reduced depreciation charges, which support higher average profit margins.
Operators in the Storage and Warehouse Leasing industry (53113) record similarly high profit margins. Like other industries in the sector, this industry incurs minimal operational costs that support high profit margins. Furthermore, industry wage costs are low due to the small number of employees necessary to operate a storage facility. Overall, the average industry profit margin is anticipated to reach 41.3% of revenue in 2019. Due to the industry’s relatively standardized services, operators invest relatively little in innovation and research and development, further contributing to their high-margin cost structure.
Operators in the Database, Storage & Backup Software Publishing industry (51121b) generate the highest profit margins in the Information sector (IBISWorld report 51). In 2019, the average industry profit margin is expected to amount to 41.3% of annual revenue, significantly above the sector average margin of 11.9%. Profit margins vary widely within this industry; larger companies that can offer various value-added services and software packages are able to collect higher fees, contributing to higher profit margins than those of smaller operators. Additionally, the industry’s major players benefit from economies of scale, further supporting high margins.
Operators in the Manufacturing sector (IBISWorld report 31-33) generate relatively low profit margins, with the sector’s average margin totaling 8.2% of annual revenue in 2019. However, the Cigarette & Tobacco Manufacturing industry (IBISWorld report 31222) represents an exception to this norm, reaching profit margins of an expected 40.7% of annual revenue in 2019. The industry is highly concentrated, with its top four companies controlling above 90.0% of total industry revenue; this strong brand loyalty among the industry’s top manufacturers enables them to charge a premium for their products with no impact on demand. Furthermore, the price that producers charge their downstream customers is generally much higher than the cost of inputs, supporting high profitability.
Edit and Infographic Design by: Shira Bartov and Kylie Marshall