How to Calculate Profit for a Small Shop (With a Worked Example)

To calculate profit for a small shop, start with your total sales and take away what you paid for the goods you sold. The result is your gross profit. Then take away your running costs, like rent, transport and electricity. What is left is your net profit, the money you really made.

Below, we work through one month in a small provision shop, step by step. At the end, you get a quick version you can do every evening.

Step 1: Add Up Your Sales

First, pick a period. A month is a good start, because rent and most bills come once a month. Then add up every sale you made in that month, in cash, mobile money or bank transfer.

Count only sales. When a customer pays back an old debt, that is not a new sale. Money you put into the shop from your own pocket is not a sale either. If a customer took goods on credit this month, count the sale this month and note that you still have to collect the money.

Say Akosua runs a provision shop in Kumasi, Ghana. Here is part of her November. The numbers are made up for this example.

Akosua took in GHS 13,050. That is not her profit. Most of that money has to go back to her suppliers.

Step 2: Work Out the Cost of the Goods You Sold

Cost of goods sold means what you paid for the items you sold. It is not everything you bought this month. It is only the stock that left your shelf. There are two ways to work it out.

Method 1: Item by item

Multiply the units you sold by the cost price of one unit. If you buy in bulk, work out the cost of one unit first. Say a carton of 48 tins costs GHS 216. Divide 216 by 48, and each tin costs you GHS 4.50.

Method 2: Count your stock

If you do not track every item, use a stock count. Count your stock at cost price on the first day of the month and again on the last day. Then use this formula.

Cost of goods sold = stock at the start + stock you bought − stock at the end

With the stock count, Akosua gets GHS 10,830. That is GHS 90 more than the item-by-item total. The GHS 90 is stock that left the shelf without a sale. For Akosua, it was a box of tins that went past its expiry date. A gap like this is a real cost, so do not ignore it. If you find a big gap, count again and look for theft or waste.

Step 3: Find Your Gross Profit

Gross profit is your sales minus the cost of the goods you sold. It is what you earn from buying and selling, before you pay for anything else. SMEDAN, Nigeria's small business agency, uses the same order: gross profit first, then expenses, then what you keep.

Step 4: Take Away Expenses to Get Net Profit

Expenses are the costs of keeping the shop open. They are not goods you sell. List every one for the same month, even the small ones.

Now take the expenses away from gross profit. GHS 2,310 minus GHS 1,200 leaves GHS 1,110. That is Akosua's net profit for November, the money she really made from the shop.

If you pay an assistant, their pay is an expense too. So is a market levy or business tax. Money you take home for yourself is not an expense. It comes out of your net profit.

Step 5: Work Out Your Profit Margin

With profit margin, you turn your profit into a percentage of your sales. Then you can compare one month with another, even when sales go up or down.

Profit margin = profit ÷ sales × 100

In plain words, for every GHS 100 that Akosua takes in, about GHS 8.50 is hers to keep. Check this number every month. If your sales rise but your margin falls, your suppliers may have raised their prices while your shelf prices stayed the same. We looked at this squeeze in our posts on rising food prices across Africa and food price margins in South Africa.

How to Calculate Profit for a Small Shop Each Day

Many shop owners want to know at closing time if the day was good. You can use the same steps for one day. The only change is how you count rent and other monthly bills. Split them across the days you open.

Say Wanjiku runs a duka in Nakuru, Kenya. She opens 30 days a month and pays KES 9,000 in rent, so her rent is KES 300 a day.

Expect big swings from day to day. A rainy Tuesday and a busy month-end Saturday look very different. Check your profit every day if it helps you, but judge your shop on the full month.

Common Mistakes

• Treating the cash box as profit. The box also holds the money you need to restock, and money customers paid on old debts.
• Counting the whole restock bill as a cost. Only the goods you sold this month count. Unsold stock is still yours, sitting on the shelf.
• Forgetting small costs. Transport, phone data, mobile money charges and expired goods add up fast. If you trade in Nigeria, read our guide to the new bank charges so you know what to add.
• Using an old cost price. When your supplier raises a price, update your cost price at once. If you do not, you think you earn more than you do.
• Mixing home money and shop money. If your family takes rice or soap from the shelf, write it down at cost price. It is not a sale. It is stock you took out of the business.
• Checking once a year. By then, a bad month is long gone and you cannot fix it. Do the sums every month.

Calculate Profit in HotKiosk

If you record your sales in HotKiosk, you do not have to add these numbers up by hand. When you add a product, you enter its selling price and its cost price. If you buy in bulk, tap Calculate Cost Price to work out the cost of one unit. Then open the Reports tab and pick a date range, like Today or This Month. On the Overview, you see your gross profit for that period, and if you record your rent, transport and other costs under More → Expenses, you see your net profit on the Finances report. Expenses and the Finances report are part of the Pro plan.

Frequently Asked Questions

What is the formula for profit in a shop?

Take the cost of the goods you sold away from your sales, and you have gross profit. Take expenses like rent and transport away from that, and you have net profit.

How do I calculate my daily profit?

Take today's sales and subtract what you paid for the goods you sold today. Then subtract today's share of rent and bills. To get the daily share, divide each monthly bill by the number of days you open.

What is the difference between gross profit and net profit?

Gross profit is what you earn from buying and selling goods. Net profit is what is left after you also pay rent, transport, wages and other running costs. Net profit is the money you really made.

Is the money in my cash box my profit?

No. Part of that money paid for the goods you sold, and you need it to restock. Your profit is only what is left after the cost of goods and your expenses.

What is a good profit margin for a small shop?

There is no single number. It depends on what you sell and where you sell it. The best test is your own shop: work out your margin every month and check that it holds steady or grows.

Should I count stock that my family uses?

Yes. Write it down at cost price and take it out of your stock, but do not count it as a sale. That way your profit stays true.

Want to see your profit without doing the sums by hand? Download HotKiosk on the App Store or Google Play.

Sources

• SMEDAN: How to Calculate Your Profit as a Small Business Owner
• Starling Bank: What is cost of sales and how is it calculated?