Sales are high. Why is profit low?
A worked example to separate sales, product profit and the cost of running the shop.
Start with the cost of the goods
Illustration: goods sell for ৳1,000 and their recorded cost is ৳850. Product profit is ৳150 before other adjustments. The ৳1,000 sale total is not profit.
Follow deliveries and discounts
New deliveries update the average cost of stock. Freight, supplier discounts and free goods affect that cost. A customer discount also reduces what the sale earns.
Then consider shop expenses
Rent, salaries and other operating expenses are separate from product cost. Do not call product margin the final net profit of the business.
- Check purchase cost and supplier adjustments.
- Review discounts and returns.
- Review expenses before judging the day’s result.