Key Insight
EBITDA margin is the lens that makes businesses of different sizes comparable. A $5M business at 18% EBITDA margin and a $500K business at 18% EBITDA margin are equally efficient operators — just at different scales.
The Formula
EBITDA Margin = EBITDA ÷ Revenue × 100
A business with $1.8M in revenue and $360K in EBITDA has a 20% EBITDA margin.
Industry Benchmarks
EBITDA margins vary dramatically by industry:
| Industry | Typical EBITDA Margin |
|---|---|
| Software / SaaS | 20–35% |
| Professional services | 15–25% |
| Healthcare services | 10–20% |
| Home services / trades | 8–15% |
| Retail | 4–8% |
| Restaurants | 5–10% |
| Construction | 4–8% |
| Distribution / wholesale | 3–6% |
Why Margin Matters More Than Dollar Profit
Two businesses both generate $200K in EBITDA:
- Business A: $800K revenue → 25% EBITDA margin
- Business B: $2M revenue → 10% EBITDA margin
Business A is a more efficient operator. Business B may be a volume play with thin margins susceptible to cost increases or revenue softness.
Margin in Valuation
Higher EBITDA margins typically command higher multiples. A roofing company at 18% margin is unusual (and valuable) — the market knows most roofing companies run at 8%. The excess margin signals competitive advantage, pricing power, or superior operations.
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