Here is a situation many shop owners will recognise: the shop is busy, the till is full every evening, and yet at the end of the month there is never as much money as expected. Often the reason is margin. Some products sell well but make very little profit; others carry the business. Without knowing which is which, it is hard to make good decisions.
In this post we explain margins in plain terms and shows why recording cost price is just as important as setting the selling price.
Margin and markup: what is the difference?
Two words get mixed up all the time:
- Markup is the profit as a percentage of the cost. Buy at KES 80, sell at KES 100: the markup is 25%.
- Margin is the profit as a percentage of the selling price. Same example: the margin is 20%.
Both are useful. Markup helps when setting prices; margin tells you how much of every shilling of sales you keep. The important thing is to be consistent and know which one you are talking about.
(These figures are simple examples, not industry benchmarks.)
Why cost price gets ignored
In many shops, the selling price is on the shelf and in the system, but the cost price lives in the owner's head or in a pile of supplier invoices. That causes problems:
- When supplier prices rise, the shelf price often stays the same and the margin silently shrinks.
- You cannot see which products are profitable and which are just busy.
- Stock valuation (what your inventory is worth) is guesswork.
Recording the cost price for every product fixes this. In Xduka POS, we give every product both a selling price and a cost price, and use the cost for margin and profitability reports.
Busy is not the same as profitable
For example, take a minimart in Kisumu. Bread and milk fly off the shelves every morning, but the margins on them are thin. Meanwhile, a shelf of spices and snacks sells more slowly but at much better margins. If the owner only looks at sales volume, they might give more space to bread and less to spices, and make less money as a result.
Fast movers bring customers in; higher-margin items often generate the profit. Both matter, and you need numbers to balance them.
Practical ways to protect your margins
Update costs when suppliers change prices
Every time a supplier invoice shows a new price, update the product cost. Then check whether the selling price still makes sense.
Watch discounts carefully
Discounts can be a great tool, but a 10% discount on a product with a 15% margin gives away most of your profit. Set discounts with sensible limits, minimum order amounts and end dates.
Count shrinkage as a cost
Stolen, damaged or expired goods are costs, even if no money changed hands. High shrinkage on a product can turn a good margin into a loss.
Include operating expenses
Product margin is only part of the picture. Rent, wages, electricity, transport and other costs all come out of gross profit. Recording expenses lets you see your true profit.
Reading a simple profit and loss view
A profit and loss (P&L) summary puts it all together:
- Revenue: what you sold.
- Cost of goods sold: what those goods cost you.
- Gross profit: revenue minus cost of goods.
- Expenses: your operating costs.
- Net profit: what is actually left.
We include a Profit & Loss section in Xduka POS Reports, alongside revenue by day, hourly breakdowns and sales by payment method, and an Expenses area where you can record operating costs by category, including recurring ones.
A monthly margin check
Once a month, ask:
- Which ten products brought in the most revenue, and what margin do they carry?
- Which products had the biggest cost increases?
- Are discounts or shrinkage eating into any category?
- Is net profit moving in the right direction?
A quick exercise
Pick your ten best-selling products this week. For each one, write down the cost price and the selling price, and work out the margin. Most owners who try this find at least one surprise: a popular item that makes far less than they thought.
From guesswork to decisions
Knowing your margins turns pricing from guesswork into a decision. Record cost prices, update them when suppliers change, watch discounts and expenses, and review profit regularly. The busiest shop is not always the most profitable, but the best-informed one usually is.
In Xduka POS, we record cost and selling prices, track expenses and include P&L reporting. Learn more at www.xduka.com.
