How to Calculate Profit in Your Business (With Naira Examples)
To calculate profit, take away the cost of the goods you sold, then expenses like rent and transport. Gross vs net profit, margin and markup in Naira.
By the KudiAI Track team · 2026-10-07 · 7 min read
To calculate profit, start with your sales. Subtract what the goods you sold cost you, and you get gross profit. Then subtract running costs like rent, transport and staff pay. What is left is net profit, your real profit.
The money in your hand at closing time is not the same as profit. The Naira examples below show why.
What is the difference between sales, profit and cash in hand?
- Sales is all the money customers paid you for goods or services.
- Profit is what remains after paying for the goods you sold and the cost of running the business.
- Cash in hand is the money in your drawer, pocket or account right now, wherever it came from.
A busy shop can have big sales and small profit. A shop with plenty of cash can still be losing money.
What are cost price and selling price?
Cost price is what you paid to get one item into your shop. Selling price is what the customer pays you for it.
If you pay a loader or a bus to carry goods from the market, add that to the cost price. Say you pay ₦9,200 for a carton of 40 packs of noodles and ₦400 to carry it to your shop. The cost is ₦9,600, or ₦240 a pack.
If you sell each pack for ₦300, you make ₦60 on every pack before other expenses.
How do you calculate gross profit?
In words: gross profit = sales minus cost of goods sold.
Only count the cost of goods you actually sold. Say you bought 40 packs and sold 30. Cost of goods sold is 30 × ₦240 = ₦7,200, not the full ₦9,600. Sales were 30 × ₦300 = ₦9,000, so gross profit is ₦1,800. The 10 packs left are still stock.
How do you calculate net profit?
In words: net profit = gross profit minus business expenses. This is what the business truly earned.
Common expenses for a small shop include:
- Shop rent (divide yearly rent by 12 to get a month)
- Transport to and from the shop
- Market levies and tickets
- Staff or apprentice pay
- Data and airtime used for the business
- Generator fuel, electricity, and POS or bank charges
Money spent on new stock is not an expense on the day you pay it. It becomes cost of goods sold when those goods are sold.
Worked example: a provisions seller in Nyanya
Amina, our example trader, sells provisions in Nyanya, Abuja. Her prices are only examples, so use your own. Here is one good day.
| Item sold | Sales | Cost of goods sold | Gross profit |
|---|
| Noodles, 40 packs | ₦12,000 | ₦9,600 | ₦2,400 |
| Tin milk, 24 tins | ₦13,200 | ₦10,800 | ₦2,400 |
| Sachet water, 15 bags | ₦6,000 | ₦4,500 | ₦1,500 |
| Groundnut oil, 6 bottles | ₦15,000 | ₦12,600 | ₦2,400 |
| Seasoning cubes, 10 packs | ₦15,000 | ₦12,500 | ₦2,500 |
| Total | ₦61,200 | ₦50,000 | ₦11,200 |
Her expenses that day were:
- Rent share: ₦1,000 (₦360,000 a year, divided by 12 months, then by 30 days)
- Transport: ₦1,500
- Market levy: ₦200
- Shop assistant: ₦2,000 (₦60,000 a month, divided by 30 days)
- Data and airtime: ₦300
That is ₦5,000 in expenses. Net profit for the day is ₦11,200 minus ₦5,000, which is ₦6,200.
She took in ₦61,200 but earned only ₦6,200. ₦50,000 of that money must go back into stock.
What does a full month look like?
Say she opens every day of a 30-day month, and every day is like this one.
| Line | Amount |
|---|
| Sales (₦61,200 × 30) | ₦1,836,000 |
| Cost of goods sold | ₦1,500,000 |
| Gross profit | ₦336,000 |
| Rent | ₦30,000 |
| Shop assistant | ₦60,000 |
| Transport | ₦45,000 |
| Market levies | ₦6,000 |
| Data and airtime | ₦9,000 |
| Freezer repair (one-off) | ₦12,000 |
| Total expenses | ₦162,000 |
| Net profit | ₦174,000 |
The freezer repair never showed up in the daily figure. That is why you should check profit over a full month, not one good day.
What is profit margin, and how is it different from markup?
Both are percentages of the same profit. The difference is what you divide by.
- Markup is the profit on an item divided by its cost price, times 100.
- Profit margin is the profit on an item divided by its selling price, times 100.
Amina buys tin milk at ₦450 and sells it at ₦550, so her profit is ₦100. Her markup is ₦100 ÷ ₦450 = 22.2%. Her margin is ₦100 ÷ ₦550 = 18.2%.
Margin is always smaller than markup for the same sale. So "I add 20% on everything" does not mean you keep 20% of sales. An item bought at ₦1,000 and sold at ₦1,200 has a 20% markup but only a 16.7% margin.
Want a 20% margin? Divide the cost price by 0.8. A ₦1,000 item then sells for ₦1,250, giving ₦250 profit, exactly 20% of the price.
You can work out margins for the whole business too. Amina's gross margin is ₦336,000 ÷ ₦1,836,000 = 18.3%. Her net profit margin is ₦174,000 ÷ ₦1,836,000 = 9.5%. She keeps about ₦9.50 from every ₦100 of sales.
Why is the money in my hand not profit?
At closing time, your drawer may hold money that is not profit at all:
- Money that must restock the shop, because it is the cost of the goods you sold
- A customer paying last month's debt, whose profit you already counted when you sold
- Money you borrowed, or your Ajo payout put into the shop
- Deposits for orders you have not yet delivered
- For POS agents, the cash float, since only your charges are income
The opposite also happens. Goods sold on credit count in sales, but the cash has not come in. So profit can be high while your hand is empty. In short, money wey dey your hand no be profit.
What if the cost price changes when you restock?
Prices change often. Profit should use the cost price you actually paid for the goods you sold, not today's market price.
Say Amina still has 10 packs of noodles bought at ₦240 each. Her new carton costs ₦260 a pack. When she sells an old pack at ₦300, her profit is ₦60. When she sells a new pack, it is ₦40.
Do not redo last month's profit with the new price. That makes old profit look smaller than it really was. And do not use the old price for new stock, or today's profit will look bigger than it is.
Check your selling price after each restock. At ₦300, her margin on noodles falls from 20% to 13.3%. To keep 20%, she would need to sell at ₦325.
Sell old stock first. It keeps goods fresh and makes it clear which cost price applies.
How do I stop mixing personal spending with business money?
Taking from the drawer for school fees, foodstuff or family needs makes profit impossible to see. Those are not business expenses.
- Pay yourself a fixed amount each week, and write it down as owner's pay.
- Record goods you take home for the family at their cost price.
- Keep business money in a separate account or wallet.
Amina's net profit was ₦174,000. If she takes ₦150,000 home that month, only ₦24,000 stays to grow the shop. If she takes ₦200,000, she is eating into her stock money, even though sales look good.
How do I know if my business is really making profit?
Ask yourself these questions at the end of each month:
- Is net profit above zero after every expense, including rent and repairs?
- Can you restock without borrowing or using customer deposits?
- Are your stock, cash and money owed to you growing from month to month?
- Is the amount you take home less than your net profit?
If any answer is no, look closely at your prices, your expenses and what you take home.
How KudiAI Track helps
KudiAI Track saves the cost price with every sale, so profit uses what you actually paid, even after restock prices change. You record sales and expenses by tap or by voice in English, Pidgin, Hausa, Igbo or Yoruba. You then see today's profit, plus daily, weekly and monthly views. The free Starter plan covers up to 50 transactions a month.
Questions people ask
Is transport to the market part of cost price or an expense?
Transport for bringing stock to your shop can be shared across those goods and added to their cost price. Your daily transport to and from the shop is a running expense.
Do sales on credit count as profit?
Yes, the profit is earned when you sell, but the cash is still with the customer. Keep a list of debts, and if one is never paid, record it as a loss.
How often should I calculate my profit?
Look at gross profit every day so you can spot pricing problems quickly. Work out net profit every month, when rent, staff pay and one-off costs are all included.
Can a business make profit and still run out of cash?
Yes. Profit can be tied up in unsold stock or customer debts, or the owner can take money out faster than the business earns it.
Sources
- Xero: How to calculate gross profit (gross profit vs net profit)
- Zoho Inventory Academy: Markup vs margin, formulas and examples