Here’s an interesting question: what are the most profitable sectors of the U.S. economy?  Put another way: what kind of businesses tend to generate the highest profit margins on average?
A recent study listed all gross and net profit margins for all industry sectors— ‘net’ being the profits after all expenses and taxes paid; how much money a company keeps for every dollar it makes.  As a baseline, the average net profit margin across all U.S. industries came to 8.54%.

The list includes everything from advertising and aerospace/defense (0.89% and 4.95% respectively) down to electrical and water utilities (13.51% and 19.34%; and you probably thought utility companies operated as nonprofits).  You might guess the tobacco industry is the most profitable and would not be far off; tobacco companies operate on a net profit margin of 27.52%.  

Maybe oil and gas production, considering the recent cost at the pump?  Not a bad guess; the oil and gas industry generates a consistent 28.26% net profit margin, which suggests that they could, if they wanted, hold prices stable through short-term oil shocks.  Oil and gas distribution, meanwhile, adds another 23.59% net profit margin.  

Given the price of food, maybe you are wondering about food wholesalers and farmers.  Farming and agriculture are way down the list, at 7.12% net profits, and food wholesalers take home an anemic 1.21% net profit.

Give up?  The champion profit industries are large money center banks (including brokerage firms) at an average 30.89% profit margin, and regional banks are not far behind, at 29.67%.  Brokerage profits would be much higher, except that the firm executives and their brokers enjoy extravagant salaries and bonuses.  Top-tier ‘producers’ (that is, the people who sell the firm’s products under the guise of advisors) routinely receive $1 million a year, and the average end-of-year bonus for all brokerage employees last year was $246,900.  To put that in perspective, that bonus alone amounts to about four times the average salary of a U.S. elementary school teacher.

There are a few industries that generate net losses every year (precious metals extraction and the home furnishings industry), while others are squeaking by.  Publishing and newspapers, as a category, generates a 1.82% profit margin.

All that said, we should keep these numbers in perspective.  It is important that the “average” may be skewed by big outliers/outperformers within any given industry, and the numbers should be interpreted with that in mind.

This article was written by an independent writer for Brewster Financial Planning LLC and is not intended as individualized legal or investment advice.