In short: Profit margin is profit as a share of the selling price: how much of every dinar you take stays with you after the item's cost.
The full guide: Pricing your products
Work it out now: Profit margin
Profit margin is profit expressed as a percentage of the selling price. The formula: margin = (selling price - cost price) ÷ selling price × 100. With a 30% margin, every dinar that goes into the drawer leaves you 300 fils of gross profit before expenses. It lets you compare products against each other and see which ones deserve more shelf space, and which you stock only because customers expect them.
Margins in Jordanian shops vary widely. Grocery staples carry thin margins but sell fast, while perfumes and accessories carry wider margins and sell slower. When you record cost prices in Ghalleh, the reports show profit by day and by item, so you can spot the items that sell a lot but earn very little, and the quiet ones that carry much of your profit.
Margin or markup?
| Profit margin | Markup on cost | |
|---|---|---|
| Formula | Profit ÷ selling price | Profit ÷ cost price |
| Item costing 12, selling at 20 JOD | 8 ÷ 20 = 40% | 8 ÷ 12 = 66.7% |
| Use it to | Read profit and compare items | Set a price from cost |
Mistakes that eat your margin
- Mixing up margin and markup: adding 25% to cost gives only a 20% margin.
- Discounting without the maths: 10% off an item with a 20% margin wipes out half your profit on it.
- An old selling price against a new, higher supplier cost, so the margin shrinks unnoticed.
A shop example
A perfume shop in Amman buys a bottle for JOD 12 and sells it for JOD 20. Profit is JOD 8, so margin = 8 ÷ 20 = 40%. Every JOD 20 of this perfume that goes into the drawer carries JOD 8 of gross profit before expenses.
Common questions
What is a good profit margin for a retail shop?
There is no single number. Groceries usually run thinner margins because stock moves fast, while perfumes and accessories run wider. Compare your margin with your expenses: it has to cover them and leave net profit.
Is profit margin the same as net profit?
No. Margin here is gross, before rent, salaries and electricity. Net profit is what remains after all of those are taken out.