Most shopkeepers know from memory what they pay for their key products and what they sell them for. Ask what actually stays on a product, though, and the answer becomes approximate — and at the end of the month there is regularly less in the till than the mental arithmetic suggested.
The reason is rarely bad pricing. Far more often it is that three different numbers go by the same name, and that part of the margin calculated on paper leaks away in places nobody wrote down. Let's look at both.
Margin, margin percentage, markup — what's the difference?
In everyday shop talk these three words often mean the same thing; in arithmetic they don't. The same product can be described as both 30 percent and 43 percent, depending on which you say — and if you and your supplier or accountant are not talking about the same one, that misunderstanding costs money.
| Term | Formula | What it divides by |
|---|---|---|
| Margin (in money) | net selling price − net cost price | nothing, it is an amount |
| Margin percentage | margin ÷ net SELLING price | the selling price |
| Markup | margin ÷ net COST price | the cost price |
The VAT trap: never calculate margin from a gross price
The shelf price is gross; the supplier invoice is usually net. Subtract one from the other and the difference still contains the VAT — so you are counting money as profit that isn't yours to keep, but to pass on. At a 27 percent rate that is an error of more than a fifth.
So the first step is always the same: divide the gross selling price by one plus the VAT rate, and work with net figures from there. In Hungary the standard rate today is 27 percent, but some foods fall under reduced rates — so check which one applies to each type of product.
Let's work it through on one product
Take a product priced at 127 forints on the shelf, with a net cost price of 70 forints. In this example its VAT rate is 27 percent.
- 11. Strip out the VAT127 ÷ 1.27 = 100 Ft. That is the net selling price. From here on every calculation uses this hundred, not the hundred and twenty-seven.
- 22. Work out the margin in money100 − 70 = 30 Ft. That is what stays on a single unit before anything else is deducted.
- 33. Margin percentage30 ÷ 100 = 30%. This is the number most reports and most accountants mean by margin.
- 44. Markup30 ÷ 70 = 42.9%. That is how much dearer you sell it than you bought it. The same thirty forints, a different basis.
Why is there less in reality than on paper?
This is where most shops lose the thread. Those thirty forints would hold only if every unit bought were sold, at full price, with exactly the money from those sales reaching the till. In practice it leaks in four places.
| Where does it go? | What does it do to the margin? | Is it visible on its own? |
|---|---|---|
| Waste (expired, broken, unsellable) | The cost was paid, the revenue never came | No — only if you record it |
| Staff consumption | The same, only the team took it | No — only if you record it |
| Promotions and discounts | The selling price drops, the cost price doesn't | Yes, if it is scheduled |
| Till differences | Part of the revenue never arrives | Only with shift closes |
Let's put numbers on that for the product above. You buy a hundred units: that is a net cost of 7,000 forints. If all hundred sell at full price, you take 10,000 forints net and the margin is 3,000 forints — a round 30 percent.
| What happens? | Units sold | Net revenue | Margin | Real margin percentage |
|---|---|---|---|---|
| Everything sells | 100 | 10,000 Ft | 3,000 Ft | 30.0% |
| 5 units become waste | 95 | 9,500 Ft | 2,500 Ft | 26.3% |
| + 2 units staff consumption | 93 | 9,300 Ft | 2,300 Ft | 24.7% |
Five percentage points doesn't sound like much, but it comes out of profit, not turnover. On a shop with three million forints of monthly turnover, that gap alone is more than a hundred and fifty thousand forints — close to two million a year.
Blended margin: the formula for the whole shop
One product's margin says little on its own, because a shop doesn't sell one product. The blended margin compares the net revenue of all sales with the net cost of the goods sold — that is the number that describes how the shop works.
It also shows why a low-margin product isn't necessarily a bad one. In many shops bread and milk barely earn anything, but they bring in the customer who also buys coffee and a sandwich. The question is never one product's margin, but what the BASKET brings.
What margin counts as normal?
There is no single right answer, and anyone who gives you one isn't talking about your shop. The ranges below are indicative: useful for spotting where you are far off, not as targets to aim at.
| Product group | Typical level | Why? |
|---|---|---|
| Basic bakery | low | Daily item, strong price competition, high waste risk |
| Milk and basic dairy | low | This brings the customer in; it isn't what you earn on |
| Soft drinks, mineral water | medium | Familiar prices customers keep in their heads |
| Coffee, hot food, quick bites | high | They pay for convenience, not for the goods |
| Local and artisan produce | high | There is nothing to compare it with at the discounter |
| Household, non-food | medium to high | Sells less often, less price-sensitive |
How to raise prices without losing customers
Raising prices is the fastest route to a better margin, and also the most frightening. The fear usually comes from doing it all at once, on everything, and visibly — none of which is necessary.
- 1Don't raise everything. Customers hold five to ten prices in their heads (bread, milk, cola, coffee): leave those alone and move the rest.
- 2Raise a little, often. A few percent on a few products each month goes unnoticed; twenty percent on everything once a year does not.
- 3Round up, but sensibly. Make 395 into 419, not 400 — a round number is more noticeable than an odd one.
- 4When you raise a price, give something with it: a fresh label, a tidier shelf, a sentence about where the product comes from.
- 5Check the unit count two weeks later. If it held, the price was fine. If it dropped, you can still step back.
The monthly ten minutes
Margin isn't a number you calculate once, it is a habit. Ten minutes a month is enough — provided there is something to work from.
- 1Look at the twenty best-selling products — but the PROFIT column, not turnover.
- 2Find the two that sell a lot and bring little. For those the question is either the price or the supplier.
- 3Look at the month's waste and staff consumption in money. That amount came straight out of your margin.
- 4Pick ONE product to raise the price on or query with the supplier this month. One, not ten.
- 5Write down what you decided. Without that you will think the same thing through again next month.
In summary
Margin means three different numbers in everyday speech, and the most expensive misunderstanding is taking markup for margin. Strip out the VAT, work in net prices, and judge the shop by its blended margin — a single product's margin tells you nothing about it.
But part of the margin calculated on paper leaves along the way: waste, staff consumption, promotions and till differences. Those four items don't disappear because you failed to write them down — they just stay invisible. Record them, and the number at the end of the month stops being a surprise and becomes a result.
Frequently asked questions
What is the difference between margin and markup?
The same amount of money with two different bases. Margin percentage divides by the selling price, markup by the cost price. On a product bought for 70 and sold for 100, the margin is 30% and the markup 42.9%.
Should I calculate with gross or net prices?
Net. A gross price contains VAT, which you pass on — count with it and you are calling money profit that isn't yours. Always strip the VAT out first.
What margin should a small shop have?
There is no single good number. Staple foods are typically low, convenience and local products higher. What matters is that the blended margin across the whole shop covers your costs and still leaves something.
Why is my real margin lower than what I calculated?
Because on paper every unit sells at full price. In practice some becomes waste, some is taken by the team, some goes out on promotion, and the till doesn't always balance. Those four items reduce the real margin.
How do I see which product actually brings the profit?
A list by unit count isn't enough, because the best-selling product often has the smallest margin. Look at the list by profit — in many shops quite different names come out on top.
Do promotions hurt the margin?
On that product, yes — that is the point of them. They pay off if they either sell more units or move stock that would otherwise become waste. Two weeks later you can measure both, on unit count and on waste.
Is it enough to look at this once a year, at stocktaking?
Stocktaking shows where you stand, but not what could have been changed. Ten minutes a month with the list by profit is worth more, because there is still time to act.
Do I need accounting knowledge for this?
No. Four arithmetic operations are enough. Your accountant prepares the statements; this calculation is about what price to sell a product at tomorrow.
Turnover isn't profit. Boltom App shows you both.
The report puts profit next to turnover, product by product — and once waste and staff consumption are recorded, the profit you see moves closer to what actually stayed.
- Turnover AND profit per product — not just what sells a lot.
- Daily waste and staff consumption totalled in money: that is what came off the margin.
- With several shops, a separate report per shop — not a blended average.
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