Your business must profit to succeed. Your net profit percentage is calculated by dividing your total sales by your net income. Net profit percentages vary according to industry and quality of management. A company without a business plan and without a definite profit goal will not endure, according to George Hedley, multi-million dollar business owner and speaker for HardHat Presentations. Committing to a desired net profit goal will greatly increase your chances of achieving lasting business success.
Relative Profit Margins
A comparison of the relative profit margins in mobile device manufacturers, for example, revealed that on company operations Apple had a 40 percent profit margin; Microsoft had a 38 percent profit margin; Nokia had a 4.9 percent profit margin and Dell had a 4.1 percent profit margin, as of 2010, according to Forbes magazine. Apple made a 55 percent profit margin off the sale of iPads, and has striven to keep its profit margin above 40 percent, according to Forbes. Apple commanded a 60 percent profit for the iPhone, as of 2010, according to Elmer-Dewitt.
Gross Profits and Profit Margins
The gross profit of your business is derived by subtracting the cost of goods sold from the selling price. For example, if the cost of your product or service was $60 to produce and you sell your product or service for $90, you've made a gross profit of $30. Your profit margin is determined by dividing the gross profit by the sale price. Using the previous example, you would divide the gross profit, $30, by the sale price, $90, to calculate your net profit margin, which would be 33.3 percent.
Gross Profit Margins and Net Profit Margins
Software companies had a 90 percent gross profit margin, as of 2011, according to FinanceScholar. However, the net profit margin of software companies was 27 percent in the same period. The difference between the gross profit margin of software companies and the net profit margin is attributed to the high cost of marketing and administration. This equation reveals that the operating costs and costs of goods sold in the software industry is relatively low while the cost of management is high. As of 2011, the net profit margin of Microsoft was 27.7 percent; the net profit margin of the software industry was 21.7 percent and the net profit margin of the S&P 500 was 10.6 percent, according to Business Accounting Guides.
Net Profit Percentage Goals
Your net profit percentage is the amount of money you have left after you've paid the operating expenses, materials, labor, taxes and associated fees relative to your business. Your profit margin is what feeds the growth of your business. The bigger the net profit percentage, the more stable and prosperous your business will be. Grocery stores typically have low profit margins because their cost of doing business is so high. They must compensate with increased sales to increase their net profits. Jewelry and high-end clothing, on the other hand, cost little to produce and have a high price tag, and therefore a higher profit margin, which necessitates fewer sales by comparison. Your net profit percentage goals should be a minimum of 15 to 20 percent according Hedley. Hedley suggests that your net profit percentage goal actually be well above the minimum, closer to 40 to 50 percent, to really be enduring.