How to calculate profit margin and set your selling prices
Many shopkeepers know how much they sell, few know how much they really earn. Margin is the difference between selling price and purchase price: it pays your rent, your staff and your own income.
The margin formula
Margin = selling price − purchase price. If you buy a bag of rice for 12,000 and sell it for 15,000, your margin is 3,000 per bag.
Markup compares that margin with the purchase price: 3,000 ÷ 12,000 = 25%. Margin rate compares it with the selling price: 3,000 ÷ 15,000 = 20%. Pick one and always stick with it.
Work out your selling price
To aim for a 30% markup, multiply the purchase price by 1.30. To aim for a 30% margin rate, divide it by 0.70. Then round to a price customers like, without going below your minimum margin.
What your margin has to cover
- Rent, electricity and water.
- Salaries and transport.
- Losses: breakage, theft, expired goods.
- Your discounts and unpaid credit.
- And finally, your own income.
Common mistakes
Forgetting transport costs in the purchase price, keeping an old purchase price after your supplier raised theirs, or giving discounts without knowing what is left. Update your purchase prices with every delivery.
Track your margins with Kaislo
Enter each item’s purchase price: Kaislo calculates the margin on every sale, by item and over the period, and shows the margin rate on the dashboard and in the Excel or PDF report.
Sales, stock, customer credit and evening accounts in one place, on phone or computer. 30-day free trial.
How to calculate profit margin and set your selling prices
What is the difference between markup and margin rate?
Markup is calculated on the purchase price, margin rate on the selling price. The margin rate is always smaller for the same profit.
What margin should a grocery store aim for?
It depends on the products: low on staples that customers compare, higher on convenience items. Calculate your real average margin rather than one fixed figure.