Every business owner knows the feeling: you have a busy day at the shop, the cash drawer is full, and you feel successful. But at the end of the month, when it is time to restock or pay rent, the money seems to have disappeared. Where did it go?
This is a common challenge for many traders and franchise owners in our region. The problem is often not a lack of sales, but a misunderstanding of Real Profit Margins.
In this article, we will explain how to calculate your true profit using the Maduuka system, and why knowing this number is the difference between a business that survives and one that grows.
The Common Mistake: Sales vs. Profit
Many people confuse Sales (Revenue) with Profit.
If you sell a product for 50,000 UGX, that money is not yet yours to spend. First, you must pay back the business for the cost of buying that item.
Step 1: Calculate Your Gross Profit
Your Gross Profit is the money left after you subtract the cost of the goods you sold.
Formula: Selling Price – Cost Price = Gross Profit
In Maduuka, you do not need to calculate this manually with a calculator.
Simply go to Reports > Product Performance Report.
Here, the system automatically shows you:
- Total Revenue: How much you sold.
- Total Cost (COGS): How much those items cost you to buy.
- Gross Profit: The difference.
If your Gross Profit Margin is low (for example, below 15%), it means you are working very hard for very little return. You may need to adjust your prices or negotiate better rates from your suppliers.
Step 2: Find Your “Real” Profit (Net Profit)
This is where many businesses lose their way. Gross Profit is not money you can take home yet. You still have Operating Expenses.
These are the costs of keeping your shop open, such as:
- Rent for the shop premises.
- Transport (Boda-boda or fuel) to collect stock.
- Airtime for calling customers.
- Staff allowances or salaries.
- Lunches and daily petty cash.
To find your Real Profit, you must subtract these expenses from your Gross Profit.
Formula: Gross Profit – Total Expenses = Net Profit (Real Profit)
In Maduuka, use the Expense Entry feature to record every shilling that leaves the business, no matter how small. Then, check your Profit & Loss Report.
Why This Matters
If you do not know your Real Profit, you are flying blind.
- Protect Your Capital: If your expenses are higher than your Gross Profit, you are making a loss. To pay bills, you will be forced to use the money meant for restocking. Slowly, your shelves will become empty, and your business will shrink.
- Growth Planning: Banks and investors want to see your Net Profit, not just your sales. A healthy margin proves your business is sustainable.
- Pricing Strategy: Knowing your margins helps you set the right prices. You will know exactly how much discount you can give a customer without hurting your business.
Conclusion
Do not just look at the cash in hand. Use the tools in Maduuka to see the full picture. By tracking your Product Performance and recording your Expenses, you move from guessing to knowing.
Remember: Revenue is vanity, Profit is sanity, but Cash is king. Ensure your margins are healthy today so your business can be here tomorrow.