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How do you measure the profitability of each individual product?
- Aug 17
- 4 min read
Updated: Aug 29
Introduction
In the modern world of commerce, simply measuring overall profit is no longer enough to make smart decisions. Stores today offer dozens or hundreds of products, and each product has its own different costs, price, and selling frequency. But do you know which of these products brings you the most profit? Which of them withdraws from your profits without you realizing it?
Measuring the profitability of each product separately is the first step to improving pricing, reducing waste, and focusing marketing efforts on what it's worth.
In this article, we provide you with a simple, practical guide to calculating the profitability of each product in your store step-by-step, with immediately applicable examples, equations, and tips.
First: What is meant by “product profitability”?
Product profitability It means the amount of profit a particular product makes when sold, after deducting its direct costs and any additional costs associated with it.
Second: Why is it important to measure the profitability of each product?
Know which products are profitable and unprofitable.
Improve pricing decisions and promotions.
Reduced waste and better inventory retention.
Directing ads towards the highest profitable products.
Stop or modify losing products.
Third: The basic components for calculating product profitability
Component
the explanation
selling price
The amount a customer pays to purchase the product
Direct cost of the product
The price you paid to buy or manufacture the product
Associated costs
Includes packaging, shipping, commission, and marketing for this product
Fourth: The simplified equation to calculate product profitability
Product profitability = selling price - (product cost + additional costs)
Profit margin = (product profitability ÷ selling price) x 100
Fifth: A simple practical example
Product: Latte coffee cup
selling price: 18 riyals
Material cost: 6 riyals
Cup and packaging: 1 riyal
Preparation cost (salaries, electricity): 2 riyals
Advertising cost per order: 1 riyal
Costs = 6 + 1 + 2 + 1 = 10 riyals Product profit = 18 - 10 = 8 riyals Profit margin = (8 ÷ 18) x 100 ≈ 44.4%
Sixth: What about digital products or services?
Intangible products such as:
Subscriptions
Consulting services
Courses
Digital designs
It may not have a direct "purchase cost", but it does:
Execution time
Software subscriptions
Payment gateway fees
Customer support costs
These costs must be allocated to each product to calculate its true profit.
Seventh: Tools that help you calculate profitability
Tool
Interest
Excel or Google Sheets
The best option for starting with low costs
Point of sale (POS) software
Provides automatic profitability reports
Accounting software (such as QuickBooks, Notebook)
Detailed reports by product, category, season
Eighth: Analysis of the profitability of a product group
You may want to analyze your products into groups:
By category (drinks - sweets - accessories)
Depending on size or flavour
Depending on the supplier
Through this you can:
Find out which category brings the best margin
Compare suppliers
Identify loss-making products within a specific category
Ninth: Common errors in calculating profitability
Error
Why is it dangerous?
Ignore packaging or delivery costs
It leads to inflated apparent profits
Not calculating marketing costs
Ads affect every order
Pricing based on competitor only
It may lead to selling at a loss without realizing it
Ignore the costs of waste and damage
Affect the actual product cost
Tenth: Tips to increase the profitability of products
✅ 1. Review prices periodically
Don't rely on the same price all year round.
Monitor cost changes and update prices when needed.
✅ 2. Redesign presentations
Do not place discounts on the most profitable products.
Use promotions to pass on slow-moving products.
✅ 3. Improve supply chains
Negotiating with suppliers
Reducing waste
Improve supply quality to reduce returns
✅ 4. Use your data to make decisions
Track the most in-demand products + the highest profits = Marketing priority
The highest selling but least profitable products = Rethink it
Eleventh: Comparison between two products
Item
A product
B product
selling price
100 riyals
80 riyals
Cost
65 riyals
45 riyals
Delivery/packaging cost
10 riyals
5 riyals
Net profit
25 riyals
30 riyals
Profit margin
25%
37.5%
🔍 Result: Product B is more profitable Although its price is lower!
Twelfth: When do you give up a product?
If the profit from it is very low
If the costs of selling it exceed what it achieves
If the demand for it is weak and there is difficulty in storing or marketing it
Thirteenth: A ready-made model for calculating the profitability of a product
Product
selling price
Product cost
wrapping
advertisement
Product profitability
Profit margin
Cotton T-shirt
85 riyals
45 riyals
3 riyals
7 riyals
30 riyals
35.3%
coffee
16 riyals
5 riyals
1 riyal
2 riyals
8 riyals
50%
Seasonal dessert
28 riyals
15 riyals
1 riyal
3 riyals
9 riyals
32.1%
Conclusion
Knowing the profitability of each product is not a luxury – it is a necessity for any store owner who wants to succeed and continue. Every product in your store must be analyzed and followed up as if it were an independent project.
Start now by creating a simple spreadsheet to record the costs of each product, and you will be surprised by information you did not realize. The key is not only to sell, but to Sell profitably And thoughtful.
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