Here is a question every Kenyan seller has answered wrong at least once: "How much profit did you make on that last sale?"

Most people say something like "I bought it for 500, sold it for 800 — so 300 profit." That 300 is not profit. Not even close. That 300 is your gross margin before everything else takes its cut. By the time you account for M-Pesa charges, transport, packaging, the "regular customer discount" you gave, and the extra 50 bob the delivery guy asked for, you might be left with 80 shillings — or nothing at all.

This is not a small mistake. It is the difference between a business that grows and one that keeps the owner broke while looking busy. Let us fix it.

What Most Sellers Think Profit Is

When I ask sellers at Toi Market and Eastleigh how their business is doing, the common answer is "business is moving." Nobody says "my net profit margin is 12%." And that is the problem.

Sellers track revenue. They know how much came into M-Pesa. But very few know how much actually stayed. The difference is usually smaller than they think.

Here is a real example from a Nairobi-based Instagram seller I spoke to last month. She sells custom sneakers. Her price breakdown per pair looked like this:

• Selling price: Ksh 4,500
• Cost of sneakers: Ksh 2,200
• M-Pesa business charges (1.8%): Ksh 81
• Delivery within Nairobi: Ksh 350
• Packaging (box + paper): Ksh 80
• Instagram ad to get the customer: Ksh 200
• Phone charge, data, WhatsApp Business subscription: ~Ksh 30
• Returns/stock damage allowance (5%): Ksh 110

Total actual costs: Ksh 3,051. Actual profit per pair: Ksh 1,449. That is a 32% net margin — decent. But she was calculating her profit as 4,500 minus 2,200 = 2,300. That is a 51% margin in her head. The reality was 19 percentage points lower.

That 19% gap is not small money. On 100 pairs a month, it is Ksh 85,100 she thought she had but did not.

The Two Numbers You Need to Track

Gross Profit

This is the simple one. Selling price minus what you paid for the product. If you bought a dress at Kamukunji for Ksh 1,000 and sold it for Ksh 2,000, your gross profit is Ksh 1,000.

Net Profit

This is the real number. Selling price minus EVERYTHING — the product cost AND all the costs of selling it. Transport. M-Pesa fees. Packaging. The commission you paid the agent who referred the customer. The bundle you bought to send those WhatsApp photos. The money you spent on power to run your phone.

Net profit is the number that pays your rent. Gross profit is just a vanity number.

The Simple Formula That Works

Take a notebook or open Google Sheets. For every product you sell, write down:

1. Selling price — what the customer actually paid (minus any discount you gave)
2. Cost of goods — what you paid the supplier
3. Transaction fees — M-Pesa, card processor, platform fees
4. Delivery cost — what the rider or post office charged
5. Packaging — boxes, polybags, paper, tape
6. Marketing cost — ads, promos, influencer payment, catalog cost
7. Returns/contingency — estimate 5% of selling price for products that get returned, exchanged, or damaged
8. Overhead per item — this is harder but essential. Take your monthly fixed costs (shop rent, assistant salary, phone bill, data, electricity), divide by the number of items you sell per month. That is your per-item overhead cost.

Now subtract items 2 through 8 from item 1. That is your actual profit per item.

Then: Net Profit Margin = (Actual Profit ÷ Selling Price) × 100

If your margin is below 15%, you are working too hard for too little. Time to raise prices or cut costs.

What to Do With This Number

Once you know your real margins, three things change:

• You stop discounting. You realize "let me drop the price by 200 to close the sale" might turn a profitable order into a loss.
• You know which products to drop. Some items you sell because "customers ask for them" but they make you 8% margin. Focus on the ones giving you 25%+.
• You price with confidence. When a customer says "that is expensive," you know your numbers. You know that Ksh 4,500 is not greed — it is Ksh 1,449 after everything. The customer is not your accountant.

One More Thing: Track Over Time

Margin is not a one-time calculation. Review it every month. When M-Pesa charges go up, or suppliers raise prices, or you start paying a delivery person a salary, your margin shifts. If you do not track it, you will not notice until your M-Pesa balance tells you something is wrong — and by then you have lost a month of profit.

Most sellers in Kenya calculate their profit wrong not because they are bad at business, but because nobody showed them the full formula. Now you have it. Use it.