How Much Profit Do Businesses Make?

"How much profit does a business make on a dollar of sales — after taxes?" A group of pollsters asked that to a random sample of adult Americans. What's your guess? 

If you were the average respondent, you would have guessed $.36! You read that right — thirty-six cents per dollar of sales! That’s $360,000 of net profit for each $1 million of sales! After taxes!

Maybe that’s why people think business owners are “greedy” and lambaste us for not paying a “living wage” and providing more paid leave and more fringe benefits. 

So, What’s the Real Number?

​If you are a business owner, you could draw on experience to guess closer to the real number, which is $.07. The average small business in the U.S. makes a net profit of $.07 per dollar of sales, or $70,000 per million sales -- and that's before taxes. Taxes reduce useful profit to around $.04 per dollar or $40,000 per million. But, hey, that’s still profit and businesses should still share it. That would be very hard to do for most companies because making money doesn’t mean a business has money. Profit, more often than not, is tied up in accounts receivable, inventory and other assets necessary to do business. 

How Much Profit Do Businesses Make

Okay, maybe 7% is true for small businesses, but what about the big guys? They’re making billions of dollars. It’s true that some large companies make billions of dollars, but in proportion, they generally do worse (in profit) than small businesses. The American Enterprise Institute says “big retail” earns about $.023 (that’s two-point-three cents) per dollar of sales, “big food” does about $.016 and the evil WalMart rakes in about $.021 per dollar of sales. In WalMart’s case, their profits are one-third of the average $.061 that state and local governments take as sales tax on every dollar of Wal Mart sales. WalMart makes billions, yes, but they have to sell $100 billion to make their $2.1 billion. 

There is little doubt that ignorance drives much animosity toward business and profit. Clearly, business has a serious public relations problem.