profit margin
Profit margin is the percentage of your revenue you actually keep, and it matters far more than how much you sell.
In plain English
Two questions decide whether a business is good. How much do you sell, and how much of it do you keep? The second is the margin, and it is the one nobody talks about.
Margin is profit divided by revenue, shown as a percentage. Sell ₦10 million and keep ₦1 million, and your margin is 10 percent.
The reason it matters so much is what it does under pressure. A business with a 5 percent margin needs only a small increase in costs to be wiped out entirely. Fuel goes up, the naira falls, a supplier raises prices, and the whole thing is suddenly making nothing. A business with a 40 percent margin absorbs the same shock and barely notices.
In Nigeria, where costs move violently and without warning, margin is not a luxury. It is survival equipment.
It also decides how you should grow. A high margin business should chase volume, because every extra sale drops real money to the bottom. A low margin business chasing volume is simply doing more work for the same nothing, and getting more tired.
Before selling more, ask whether selling more is actually worth anything.
You sell ₦20 million a year at a 5 percent margin, keeping ₦1 million. Diesel prices rise and your costs increase by 4 percent of revenue. Your profit collapses to ₦200,000. Nothing about your sales changed.
Questions people ask
How do I improve my margin?
Raise prices, reduce costs, or sell a better mix of products. Most Nigerian businesses are far too frightened of the first one and it is usually the fastest.
What is the difference between gross and net margin?
Gross margin looks only at the direct cost of what you sell. Net margin counts everything, including rent, staff and tax. Both are useful and they answer different questions.
Is a low margin always bad?
Not if the volume is enormous and reliable. Supermarkets live on thin margins. But thin margins with low volume is simply a hard job with no reward.
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