Realistic Net Profit

[gwhunter]

I have recently taken a new job (at a new organization) where I am building a new division of a company from scratch.  My previous role(s) was as a clinician providing clinical services.  My new position requires that, but also requires me to act as a quasi CFO, VP, & COO, etc. because this new branch of the company has an employee count of 3.  With that comes the expectations to be accountable to a budget and a gross and net profit margin.  Previous to this role I was only accountable to provide exceptional clinical service.  But now I report directly to the president of the company.  However, with that I feel as though either my inexperience is allowing myself to be taken advantage of, or the president of the company has unrealistic expectations of what this "new" division of the company can actually make (I am the only person at the company that has any idea what it is that I do).  Because of this I feel as though what I am being expected to provide in terms of a net profit margin is going to substantially affect the quality of service the clinical practice will be able to provide.

So this brings me to ask you mustacians that may have experience in operating a business or acting as a manager, what have been your expected or required NET profit margins that you had to achieve?  A quick google search tells me that the companies in the S&P had an average of around 11%, grocery stores average around 2%, and restaurants range from 2%-6%.  All of these are WAY lower than what is being expected of me (while also not in my field, however). 

If it makes any difference my anticipated gross revenue for the first year should be around 800k-1M. 

Thanks for any insight that may allow me to put things in perspective when discussing my budget and spending with the president of the company. 

[zolotiyeruki]

Wow, it sounds like you're being thrown into the deep end of the pool here.  Were the details of these responsibilities discussed before you hired on?  Were the revenue/profit expectations set ahead of time?  From the limited information we have here, this sounds like either you got a job for which you're not prepared, and/or the president has some unrealistic expectations, and/or the president isn't providing the kind of support that would help you to bootstrap your way to success.

[skeptic]

I'm sorry but I think the only honest answer here is: "It depends."

Could be anything from 1% to 25% or perhaps even outside of that range. You'd expect a higher margin in industries with less possibility for competition (think Intel), that have a long product cycle, or that benefit from rent seeking.

It also depends on how you are calculating things... the devil is in the details. For instance, if your company already has a super-valuable and well recognized brand, then you ought to be able to achieve higher-than-otherwise net margins, even though the value of that brand isn't going to show up when calculating your net margin. How you compute debt payments and investments into the company can all affect that final net income number.

If you're just looking for some ammunition to convince your president to adjust the goals, you can look up margins by industry and see the one that applies to yours. You could also make the argument that since  this new division is in a growth phase, you're not going to be able to meet those net margins right out of the gate and, if you tried to, it would cripple the division and prevent it from ultimately achieving its profit potential. Who knows if that is true... what goals are realistic is very subjective, and some managers feel it is their duty to set unrealistic goals because they think it will make people do their absolute best to try to get closer to them.

But the true answer about what is realistic/good is your own company's situation.

It sounds like a tough situation to be in. Managing expectations seems like a key part of it. Good luck!

[bognish]

The expected net profit for your division is higher than the S&P average because your division net profit is most likely not including costs of corporate overhead: HR, admin, taxes, president/CEO's salary etc. Also if you are bringing in 15% return on investment, but my hypothetical division could bring in 18% then it would make more sense to allocate limited resources and dollars to the more profitable idea. Rates of returns and profit are going to very widely depending on business segment and capital requirements.