The small-business handbook

Four numbers get used loosely around a shop, and two of them are not the same thing even though they sound like it. Cost price is what you paid to have the item on the shelf. Sell price is what the customer hands over. Margin and markup both describe the gap between those two — but they answer different questions, and mixing them up is the single most common way a shop quietly underprices its stock.

Markup answers "how much did I add on top of what I paid?" It is the profit divided by the cost price. Margin answers "what share of what the customer paid is actually mine to keep?" It is the profit divided by the sell price. A 50% markup and a 50% margin are not the same price — and because markup is always the bigger-looking number, it is easy to feel better off than you are if margin is the number you actually need.

A few habits keep this from becoming a monthly guessing game:

• Price from the true cost, not the invoice — freight, transport and any fee to get the item on the shelf belongs in cost price, not left out of the sum.
• Decide your target margin per product line before you set a price, so a "good deal" from a supplier doesn't quietly become a bad deal for you.
• Recheck margin whenever a cost changes — a supplier price increase that isn't passed on is a margin cut you didn't choose to make.

Selling on trust is normal for most shops, and it is not something to apologise for. A regular customer who is good for it, a supplier who buys in bulk and pays at month-end, a neighbour in a tight week — refusing credit outright can cost you the relationship as much as extending it carelessly can cost you the money. The problem is never credit itself. It is credit with no limit and no record.

Three rules that keep credit from becoming a loss

• Set a limit per customer, in advance. Decide the most you are willing to have outstanding with any one person before they ask — not while they are standing at the counter.
• Record it the moment it happens, with a name attached. A credit sale that only lives in memory is the one that gets forgotten, disputed, or quietly written off six months later.
• Follow up on a schedule, not a mood. Check outstanding balances weekly. A balance that is 8 days old is a conversation. A balance that is 34 days old is a pattern — and a signal to stop extending further credit until it's addressed.

The invoice from your supplier is not the real cost of imported stock. Shipping, clearing at customs, and the exchange rate you actually paid on the day all land on top of it — and if none of that gets spread across the units, every price built "from the invoice" is quietly underpriced from the moment it hits the shelf.

The fix is called landed cost: take everything you spent to get the shipment onto your shelf, and divide it evenly across every unit in that shipment. From that point on, that unit's cost price is the landed cost — not the invoice line.