Profit margin is the share of each sale you keep as profit. To calculate it, take the selling price, subtract all your costs for that sale, divide what's left by the selling price, and multiply by 100. For example, if you sell something for GH₵ 200 and it costs you GH₵ 140 in total, your profit is GH₵ 60 and your margin is 60 ÷ 200 = 30%.
Knowing your margin tells you whether you can afford ads, discounts, free delivery and staff. Many busy sellers are surprised to find their best-selling product barely makes money.
1. The two margins you need
Gross margin looks at one product:
Gross margin = (Selling price − Cost of the product) ÷ Selling price × 100
Net margin looks at the whole business, after every cost:
Net margin = (Total sales − All costs) ÷ Total sales × 100
All costs include ads, data, rent, staff, fees, delivery and packaging.
2. Margin vs markup
These get mixed up all the time:
- Markup is profit compared with cost: (Price − Cost) ÷ Cost.
- Margin is profit compared with price: (Price − Cost) ÷ Price.
An item that costs GH₵ 50 and sells for GH₵ 100 has a 100% markup but a 50% margin. If you plan "a 50% margin" but add 50% to cost, you'll only make 33%.
To set a price from a target margin: Price = Cost ÷ (1 − margin). For a GH₵ 80 cost and a 40% margin: 80 ÷ 0.6 = GH₵ 133.
3. Worked example: a physical product
You sell a dress for GH₵ 250.
| Cost per dress | GH₵ |
|---|---|
| Fabric and sewing | 110 |
| Packaging | 6 |
| Share of ads this month | 20 |
| Paylead fee (4% of 250 + GH₵ 1) | 11 |
| Total | 147 |
Profit: 250 − 147 = GH₵ 103. Margin: 103 ÷ 250 = 41%.
If you offer free delivery that costs you GH₵ 30, profit drops to GH₵ 73 and margin to 29%. That's why delivery decisions matter.
4. Worked example: a digital product
You sell an ebook for GH₵ 100.
- Paylead fee: 4% of 100 + GH₵ 1 = GH₵ 5
- Share of ads: GH₵ 15
- No production cost per copy
Profit: 100 − 20 = GH₵ 80. Margin: 80%.
Digital products have high margins because each extra copy costs almost nothing. See best digital products to sell.
5. Worked example: a service
You charge GH₵ 1,500 for a logo package.
- Your time: 10 hours you value at GH₵ 60 an hour = GH₵ 600
- Software share: GH₵ 50
- Paylead fee: 4% of 1,500 + GH₵ 1 = GH₵ 61
Profit after paying yourself: 1,500 − 711 = GH₵ 789. Margin: 53%.
Always count your own time as a cost. Otherwise you can't tell whether you're running a business or a hobby. See how to sell logo design packages.
6. What's a good margin?
It depends on the business:
- Fast-moving goods (data, groceries, toiletries): low margins, high volume.
- Fashion, beauty, gifts: often 30 to 60%.
- Digital products and courses: often 70% or more.
- Services: depends how you value your time; 40 to 60% after paying yourself is healthy.
The key test: is your margin big enough to pay for the ads that bring each sale? If you spend GH₵ 40 in ads to get a sale that makes GH₵ 30 profit, you're losing money. See how much to spend on Facebook ads in Ghana.
7. How to improve your margin
- Raise prices slightly. Most small sellers underprice.
- Sell bundles and add-ons to raise each order's value. See how to create product bundles that sell.
- Buy in bigger batches to cut product cost.
- Let the buyer cover the payment fee with Paylead's customer pays transaction charges setting.
- Charge for delivery or set a free-delivery minimum.
- Cut ads that don't sell. Track which ads bring sales with your pixel.
- Sell more to existing buyers. Repeat sales have no ad cost. See how to get repeat customers.
8. Track it every month
Write down monthly: total sales, total costs, and net margin. Your Paylead dashboard shows your sales; add your costs in a simple sheet, or record them as expenses so you see sales and spending in one place.
Frequently asked questions
Is profit margin the same as profit?
No. Profit is the amount in cedis. Margin is that profit as a percentage of the price.
Should I include my own salary as a cost?
Yes. Pay yourself a fair amount and count it. Your real profit is what's left after that.
How often should I check my margins?
Monthly for the whole business, and every time a supplier price, delivery cost or ad cost changes.
Read next: how to price physical products, how to read your online store numbers and customer lifetime value explained.
