Why Most Shop Owners Don't Know Their Real Profit
Surprising truth: 70% of small shop owners can't accurately tell you their monthly profit. They confuse "cash in register" with "profit." Real profit is what's left after ALL costs.
The Simple P&L Formula
Net Profit = Revenue − Cost of Goods Sold − Operating Expenses − Tax
Step-by-Step Calculation
Step 1: Calculate Revenue (Sales)
Total sales for the month, BEFORE VAT (since VAT is not your money).
Example: Total invoices = 115,000 SAR (with VAT) → Revenue = 115,000 ÷ 1.15 = 100,000 SAR
Step 2: Calculate Cost of Goods Sold (COGS)
The cost of inventory you actually sold (not what you bought):
COGS = Opening Inventory + Purchases − Closing Inventory
Example: Started month with 50,000 SAR inventory, bought 60,000 SAR, ended with 40,000 SAR → COGS = 70,000 SAR
Step 3: Calculate Gross Profit
Gross Profit = Revenue − COGS
Example: 100,000 − 70,000 = 30,000 SAR (30% gross margin)
Step 4: Calculate Operating Expenses
- Rent: 8,000 SAR
- Salaries (3 employees): 12,000 SAR
- Utilities (electricity, water): 800 SAR
- Internet: 200 SAR
- Insurance & GOSI: 600 SAR
- POS subscription: 0 (GIGAPOS lifetime!) or 100 SAR (cloud)
- Marketing: 1,500 SAR
- Maintenance & supplies: 500 SAR
- Total: 23,600 SAR
Step 5: Calculate Operating Profit
Operating Profit = Gross Profit − Operating Expenses
Example: 30,000 − 23,600 = 6,400 SAR
Step 6: Subtract Income Tax (if applicable)
Saudi nationals: No income tax. Foreign-owned: 20% on net profit.
Sample P&L Statement
| Revenue (excluding VAT) | 100,000 |
| COGS | (70,000) |
| Gross Profit | 30,000 (30%) |
| Rent | (8,000) |
| Salaries | (12,000) |
| Utilities | (800) |
| Marketing | (1,500) |
| Other | (1,300) |
| Operating Profit | 6,400 (6.4%) |
Healthy Profit Margins by Industry
- Restaurants: 5-10% net
- Coffee shops: 10-15% net
- Retail (clothing): 5-10% net
- Grocery: 2-5% net (volume business)
- Pharmacies: 3-7% net
- Electronics: 5-10% net
Common P&L Mistakes
- Counting VAT as revenue (it's not yours)
- Not accounting for inventory shrinkage (theft/expiry/damage)
- Forgetting your own salary as owner
- Ignoring depreciation on equipment
- Mixing personal and business expenses
- Not tracking COGS accurately by item
How POS Makes This Easy
GIGAPOS automatically:
- Separates revenue from VAT in reports
- Tracks COGS per item (you set cost when adding products)
- Calculates gross profit per category
- Shows daily/monthly P&L summary
- Identifies your most/least profitable products
- Tracks inventory shrinkage automatically
Monthly P&L Routine (15 Minutes)
- Pull GIGAPOS sales report (Revenue + VAT separated)
- Add up all expense receipts (kept in folder)
- Get inventory closing balance from POS
- Plug into the formula above
- Compare to previous month — investigate big changes
- Set targets for next month
When P&L Shows Loss — What to Do
- Increase revenue: Better marketing, higher prices on premium items
- Reduce COGS: Negotiate with suppliers, reduce waste, improve inventory turnover
- Cut operating expenses: Renegotiate rent, automate to need fewer employees
- Quick wins: Drop loss-making products entirely, focus on top 20%