Article 6: How Much Profit Is Normal for a Small Shop?
The short answer: there is no one normal profit for every shop. A grocery shop and a clothes shop make very different profits from each sale. So do not copy a number from another shop. Work out your own profit for every 100 sales, and compare it with your own last month’s, with your costs, and with the pay of a job.
Why there is no one normal number
Some shops sell goods that move fast, like food and drinks. They make a small profit on each item, but they sell many items. Other shops sell goods that move slowly, like clothes or tools. They make a bigger profit on each item, but they sell fewer. A number that is good for one shop can be bad for another. So the best question is not “What is normal?” but “Is my profit getting better or worse, and is it enough?”
Two numbers to know
Use the numbers from your month in the profit article. Total sales: 100,000. Profit from your goods: 45,000. Other money spent: 20,000. Real profit: 25,000.
- Profit from your goods, in every 100 of sales: 45,000 ÷ 100,000 × 100 = 45. Of every 100 you sell, 45 is left after paying for the goods.
- Real profit, in every 100 of sales: 25,000 ÷ 100,000 × 100 = 25. Of every 100 you sell, 25 is left after all your costs.
Three ways to check your number
1. Compare with your own last months. Write down your number every month. If it goes up, good. If it goes down for two months, look for the reason.
2. Find the sales you need to cover your costs. You pay your other money spent every month, even if you sell nothing. Use this:
Sales you need = other money spent ÷ profit from your goods in every 100 × 100
20,000 ÷ 45 × 100 = about 44,444.
If you sell less than 44,444 in a month, you lose money. In this example you sold 100,000, which is more than twice what you need. That is a safe shop.
3. Compare with the pay of a job. If you work in the shop every day, part of your real profit is pay for your work. Ask: what could I earn working for someone else? If a job would pay 20,000 a month, and your real profit is 25,000, the shop pays you 5,000 more. If your real profit is 15,000, the shop pays you less than a job. Think about why.
If your profit number goes down, check these
- Your buying prices went up, but your selling prices did not.
- Too many discounts to customers.
- Goods spoiled, broke or were lost. Count your shelves.
- You sell more of the goods that give less profit.
- Your other money spent went up, for example rent, wages or electricity.
- You forgot to write down some sales or payments.
Common mistakes
- Copying a profit number from another shop or from the internet.
- Looking only at sales. A shop can sell a lot and still make little profit.
- Forgetting that your own work has a value.
- Raising prices without checking if customers still buy.
- Mixing up the profit from your goods and your real profit.
What comes next
In the next Article 7, we look at giving goods on credit: how to do it without losing money.
This article is for general learning. It is not personal financial advice.
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