InventryBookKirana store profit margin: a worked example with real items
InventryBook team ·
Why the "average margin" you hear means little
Ask ten kirana owners their margin and you will hear anything from 3% to 30%. Both can be true. Atta, sugar and oil sell at a few rupees above cost; namkeen, cosmetics and loose items earn far more. Your shop's margin depends on what you sell, in what mix. The only number worth knowing is your own, and it takes one afternoon to work out.
Margin and markup are not the same
- Margin is profit as a share of the selling price: (sell − cost) ÷ sell.
- Markup is profit as a share of the cost: (sell − cost) ÷ cost.
Example. You buy a packet at ₹80 and sell it at ₹100. Profit ₹20. Margin = 20 ÷ 100 = 20%. Markup = 20 ÷ 80 = 25%. Distributors often talk in markup, while your profit and loss works in margin. Mixing them up makes a shop look 5 points better than it is.
Step 1: Margin item by item
Take your bills for one month and pick your 10 biggest items by sales. For each, write the cost you paid (from the last supplier bill, without GST if you claim the GST back), your selling price and the quantity sold.
| Item | Cost | Selling price | Margin | Sold in a month | Profit |
|---|---|---|---|---|---|
| Atta 10 kg | ₹420 | ₹450 | 6.7% | 60 | ₹1,800 |
| Sugar 1 kg | ₹42 | ₹45 | 6.7% | 300 | ₹900 |
| Sunflower oil 1 L | ₹140 | ₹150 | 6.7% | 150 | ₹1,500 |
| Toor dal 1 kg | ₹130 | ₹145 | 10.3% | 120 | ₹1,800 |
| Biscuits (pack) | ₹8.50 | ₹10 | 15.0% | 900 | ₹1,350 |
| Namkeen 200 g | ₹38 | ₹50 | 24.0% | 200 | ₹2,400 |
| Bath soap | ₹28 | ₹35 | 20.0% | 250 | ₹1,750 |
| Shampoo sachets (strip) | ₹16 | ₹20 | 20.0% | 300 | ₹1,200 |
| Loose rice 1 kg | ₹48 | ₹56 | 14.3% | 400 | ₹3,200 |
| Cold drink 600 ml | ₹32 | ₹40 | 20.0% | 300 | ₹2,400 |
These are example figures: use your own bills.
Step 2: The month's margin
Add up the ten items:
- Sales: ₹27,000 + ₹13,500 + ₹22,500 + ₹17,400 + ₹9,000 + ₹10,000 + ₹8,750 + ₹6,000 + ₹22,400 + ₹12,000 = ₹1,48,550
- Profit: ₹18,300
- Margin on these ten items: 18,300 ÷ 1,48,550 = 12.3%
Notice that atta, sugar and oil are 42% of these sales but earn only 23% of the profit. Namkeen, soap, sachets and cold drinks are a quarter of sales and earn 42% of it. That is the mix at work.
Step 3: From gross margin to net profit
Margin is before your running costs. To know what the shop really earns, take the month's sales, less what the goods sold cost you, less expenses:
Net profit = Sales − Cost of goods sold − Expenses
Example. A shop sells ₹4,00,000 in a month at a 12% margin: gross profit ₹48,000. Rent ₹12,000, electricity ₹3,000, a helper's salary ₹12,000 and small expenses ₹3,000 make ₹30,000. Net profit = ₹18,000, or 4.5% of sales.
Stock you bought this month is not an expense: it becomes a cost only when it sells. Put purchases in expenses and your profit swings up and down with your buying days.
Where kirana margin leaks
- Selling at an old price after the distributor raised it. Check the last purchase price when a bill arrives.
- Damaged and expired stock written off quietly, never counted against profit.
- Udhaar that never comes back. It is a sale with no money.
- Free items and rounding. "₹2 chhod do" on every bill is ₹2,000 a month on a thousand bills.
- Staff discounts nobody approved.
Raising margin without losing customers
- Keep the fast staples priced sharp; customers compare those.
- Give space and attention to high-margin lines (namkeen, personal care, loose items you pack yourself).
- Buy staples in larger lots when the distributor offers a scheme, if they sell fast enough.
- Set a minimum margin you will accept on every item, and look at anything below it.
Doing this in InventryBook
InventryBook keeps the cost of each item from the last purchase price and records it on every bill line, so the profit of a past day never changes when a new purchase arrives at a new price. Reports show sales, cost of goods sold, gross profit, expenses and net profit for any period, with GST taken out. Items with no cost price are listed instead of being counted at nothing. "What sold most" and sales by category show your mix, and staff can be limited on prices and discounts. See it for kirana and general stores.
Frequently asked questions
What is a good profit margin for a kirana store? It depends on your mix. A shop selling mostly staples may run a gross margin under 10%; one with more personal care, snacks and loose goods can run much higher. Work out your own, then improve the mix.
Should I calculate margin with or without GST? Without. GST you collect is the government's; if you claim input credit, your cost is also without GST.
How often should I check my margin? Once a month, and whenever a big supplier changes prices.