If you’ve been wondering how your business profit numbers compare to others in your industry or if you’re considering entering a new industry, this is the guide for you. We’ve broken down the data sets from our friends over at the Australian Bureau of Statistics and drilled down to uncover who is making money… and who isn’t.
And as you know, understanding how industries are performing across Australia will give you the edge to better understand how your business should perform.
So, without further fanfare…
How much profit do Australian Businesses Make? Based on Company Size.
The findings we uncovered from the ABS data showed that the average Operating Profit by company size in Australia was:
- For the 2017-18 financial year, the average profit margin for micro-businesses (0-4 employees) across all industries was 23.2%. Industries with the most significant average profit margin include real estate services (55.4%) and health care and social assistance (42.7%). The lowest was mining, with a 0.7% profit margin.
- Businesses with 5-19 employees for the 2017-18 financial year experienced a 7.9% average profit margin across all industries. The industries with the highest profit margin were real estate services (23.6%) and agriculture and forestry (18.5%).
- Those with 20-199 employees across all industries in the 2017-18 financial year had an average profit margin of 6.3% compared to 6.5% the year before. Rental and real estate services had the highest profit margin at 23.4%.
- Businesses with over 200 employees had an average profit margin of 6.3% across all industries. In the 2017-2018 period, which represents the most recent data, Agriculture, Forest and fishing had the lowest profit margin at a tiny 0.8%, down from 11.2% in 2015-2016.
What is the average profit margin by industry in Australia?
- The Agriculture, Forestry, and Fishing industry's average profit margin is 15.5%
- The Mining industry's average profit margin is 24.0%
- The Manufacturing industry's average profit margin is 6.1%
- The Electricity, Gas, Water and Waste Services average profit margin is 7.2%
- The Construction industry's average profit margin is 9.5%
- The Wholesale Trade industry's average profit margin is 3.6%
- The Retail Trade industry's average profit margin is 4.8%
- The Accommodation and Food Services industry's average profit margin is 8.3%
- The Transport, Postal and Warehousing industry's average profit margin is 9.7%
- The Information Media and Telecommunications industry's average profit margin is 10.8%
- The Rental, Hiring, and Real Estate Services industry average profit margin is 35.6%
- The Professional, Scientific, and Technical Services industry profit margin is 20.4%
- The Administrative and Support Services industry average profit margin is 8.7%
- The Public Administration and Safety (private) industry average profit margin is 8.1%
- The Education and Training industry's average profit margin is 9.9%
- The Health Care and Social assistance industry's average profit margin is 18.0%
- The Arts and Recreation Services industry's average profit margin is 13.4%
- Other Services' average profit margin is 12.6%
As you can see, from industry to industry, it can be difficult to predict profit margins, but the historical data provides some great insight.
With that covered, we decided to work back through the data to uncover some industry insights. Here’s what we found:
Key Findings Across Industries
- The mining industry experienced significant growth across all items, including employment. It increased by 10,000 people, driven by growth in the Metal ore mining subdivision, which increased employment by 6,000 people.
Manufacturing experienced growth in most key items, primarily due to Primary Metal and food product manufacturing. Wages, salaries, and employment increased by an additional 14,000 people.
- For the construction industry, the building construction subdivision increased by 3.3% due to an increase in the value of building work done in Australia that saw a 2.9% increase in growth.
Health Care Industry
- What’s most interesting is that this category recorded the most significant employment growth of all industries, increasing by 109,000 people. The two sectors that saw the most significant increase were residential care and social assistance.
Information Media and Telecommunications Industry
- The sector that contributed most to the decline was Telecommunication and broadcasting services, with $2.1b lost.
As you can see, understanding how industries are performing across Australia gives you a benchmark to better understand how your business should perform. If profits are dropping, is this due to your business, or are profits dropping across your industry?
So, the next question we assume you have is:
How can I improve the profit margin of my business?
Running a business can be stressful, especially in times of uncertainty. Here are a few tips to help you stay on track and preserve your business profitability.
1. Focus on cost management
Pushing for more sales can be pointless unless you’re making a decent profit margin. While there is a benefit to attempting to grow your sales, it can typically mean additional costs. However, reducing your expenses by 1-2% will flow directly to your bottom line. To protect your profit margin, consider cost management as necessary as your sales.
2. Monitor high costs weekly
For most businesses, wages and the cost of goods sold (COGS) are the two highest costs, and you should review them weekly. These two costs can make or break a business. When you have them under control, you can stay cash flow positive. Monitor COGS through a regular stocktake of products in the business and wage costs using an online staff rostering solution such as RosterElf. You can set budgets and see prices live before publishing weekly rosters.
3. Review your prices
When times are desperate, businesses can be quick to discount. But to protect profit, it’s essential to stop discounting and review your prices regularly to look for opportunities where you can increase them. The other thing to avoid is trying to compete on price with your competitors. Sticking to what you know when times are good will protect you from low profit when times are bad.
4. Prevent time theft
Time theft costs US businesses $11 billion annually, with 1 in 2 employees admitting to adding between 15 and 60 minutes to their timesheets. Using a rostering management system keeps employees from rounding out working hours and not clocking breaks. With RosterElf, you have full transparency into the clock in and out times to manage time theft.
Now, if you need help controlling those costs, why not sign up for a free trial of RosterElf. Our Magically Simple Rostering and Payroll Software ensures your staff are on time, your payroll is accurate, and your employee scheduling is a breeze.
And lastly, if you’d like to work with the raw data, simply head over to the Australian Bureau of Statistics (ABS) here: Australian Industry 2017-2018. If you’d like to dive deeper into the industry analysis data, simply head here: Australian Industry Data.
Above is our 2021 Update on Business Profit Numbers. Keep reading the historical data set from the 2015-2016 ABS Study below.
To the untrained eye, it can appear that a business with a line of customers out the door is making a massive profit.
Surely it must be true that healthy sales = healthy profit?
If only it were so...
Business people know, from personal experience, that successful sales don't automatically convert into a healthy profit.
Back in 2010, I opened my first restaurant. We have a massive first month of sales, well above my expectations, and I vividly recall driving to see my accountant at the end of the month to do our first P+L review. I felt pumped as I speculated on how significant the profit number would be. However, upon walking into my accountant's office and seeing his face, I knew something was seriously wrong. He made me a coffee and calmly sat me down to break the news….we made a 5% profit. FIVE PERCENT?! Seriously…but sales were huge, and we all worked so hard! How could only 5% be left over??
So what went wrong? The core problem was that my labour and COGs were way over budget, meaning that although I sold a lot of food and drinks, I had simply spent too much on the roster and had a food portioning and wastage problem.
This was my first lesson about small business costs and how they can make or break you, regardless of sales. It was a depressing moment and an important lesson I have never forgotten.
Profit margins are a big challenge for most small businesses.
So How Much Profit Does the Average Australian Business Make?
The Australian Bureau of Statistics (ABS Dataset number 8155.0 – Australian Industry, 2015-16) paints a scary picture of the reality:
ABS Dataset number 8155.0 – Australian Industry, 2015-16
- The average profit margin across all businesses was 10.9%.
- The bottom three industry sectors with the lowest profit margins in FY16 were Wholesale Trade at 3.4%, Mining at 3.7% and Retail Trade at 4.3%.
- The top three industry sectors with the highest profit margins in FY16 were Rental, Hiring and Real Estate Services at 50.1%, Health Care and Social Assistance (Private) at 27.2% and Professional, Scientific and Technical Services at 22.2%.
- The Mining industry showed the most significant drop in profitability over the past four years, going from a 26.5% profit margin in FY13 down to just 3.7% in FY16.
- The worst-performing industry with the highest percentage of businesses that did not make a profit in FY16 was the Mining sector, at 60.5%.
- The best-performing industry sector with the lowest percentage of businesses that did not make a profit in FY16 was the Transport, Postal and Warehousing sector, at 12.1%.
The scariest fact is that 1 IN 5 AUSTRALIAN BUSINESS DON'T MAKE A PROFIT AT ALL!
Given that approximately 2.2 million businesses are operating in Australia, more than 450,000 Australian businesses didn’t make a profit in FY16!
How Does Your Profit Compare to Industry Averages?
Whilst the statistics above help paint the big picture, the ABS has some excellent industry benchmark tools you can use to see how your business compares with others in similar industry segments.
Check out the ABS Dataset to make your own comparison.
How Can I Improve the Profit Margin in My Business?
Here are a few tips on how to maximise profit margins in your small business:
1. Cost Management is AS IMPORTANT as Sales.
It seems obvious, I know, but there is no point in pushing for more sales unless you make a decent profit margin.
While growing your sales, increasing sales through marketing, new product items, or sales often means additional costs.
However, reducing expenses by 1%-2% will flow straight through your bottom line.
So make sure you are a cost-focused business owner who understands that cost management is as essential as sales growth.
2. Watch Your Big Costs Weekly.
For most businesses, staff and the cost of goods sold (referred to as COGS) are their two highest costs and should be calculated and reviewed weekly. Yes, each and every week.
These two items can make or break your business. Have them under control, and you will see a healthy number on the bottom of your P+L. Fail to watch them like a hawk, and you will have depressing conversations with your accountant at the month's end.
So how can you best manage staff and COGs?
COGs are best managed through a regular stocktake of products in the business and tracking discounts and wastage effectively.
Labour costs should be managed using an online staff rostering solution such as RosterElf, where you can set budgets and see costs live before publishing, which is vital. Most of our clients find they save between 2-3%, which can make a massive difference to the bottom line.
3. Do a Full Audit of Smaller Costs Quarterly.
Although your small ticket costs may be tiny compared to labour and COGS, they can add up!
An excellent suggestion is to block out a half-day every quarter and review every small cost item in the business, from internet and phone plans to insurance and training costs to even stationary and printing suppliers. Set a goal each quarter to find 1-2% savings but seek new quotes and look at areas that can be cut altogether.
4. Review Your Prices.
Customers are not as sensitive to price increases as we all think, and the results can be massive. Every cent in terms of price increase usually flows straight through to profit.
Let's say you own a coffee shop that sells 2500 coffees a week for $4 each. Increasing that price by $0.20 will result in a profit impact of $26,000 annually! That's huge.
Always look at opportunities to increase prices and keep an eye on what competitors are doing. If your service and product are better than anyone else, most customers will not mind a slight increase.
Nothing feels worse than working hard and growing your business, only to find a measly profit number at the end of the month.
Try these tips in your business, and you will grow your profit and satisfaction.
Lastly, if you want to improve your business's profitability, why not try online rostering. With the ability to save hours every week, you'll have more time to focus on the profit drivers in your business. And if you're looking to decrease the cost of staff in your business, a live schedule budgeting tool will help drop your labour cost percentages in minutes.
Cheers to healthy P+Ls!
CEO/Founder @ RosterElf
Magically Simply Staff Rostering