Nkechi sells hair extensions and skincare from a shop in Onitsha, plus a growing WhatsApp order book. She buys a bundle of extensions at ₦18,000 and sells it at ₦25,200.
Ask her what profit she makes and she will tell you, without hesitating, "forty percent".
She is wrong. She makes 28.6%.
Nothing about her business is badly run. Her costs are tight, her suppliers are good, she chases her debtors. She has simply been using one number and calling it another, and over a year that single mix-up has cost her about ₦2.7 million in profit she budgeted for and never received.
This is the most common pricing error among Nigerian MSMEs, and it is entirely fixable in about ten minutes.
There are two different ways to express profit as a percentage, and they use different denominators.
Markup is profit measured against what the item cost you.
Margin is profit measured against what the item sold for.
Same naira profit. Two different percentages. Always.
Take Nkechi's bundle:
She added 40% to her cost, so she had a 40% markup. But only 28.6% of the money that came through the till was profit.
The rule to remember: markup divides by cost, margin divides by price. Because the selling price is always bigger than the cost, the margin is always the smaller number. If someone quotes you a profit percentage and you do not know which one they mean, you do not know what they are telling you.
Nkechi moves 80 bundles a month. That is ₦2,016,000 in sales.
She had been planning against "40% profit", so she expected ₦806,400 of gross profit each month to cover rent, her two staff, transport and her own drawings.
The real figure is 28.6% of ₦2,016,000, which is ₦576,000.
That is a shortfall of ₦230,400 every single month. Over twelve months, ₦2,764,800.
Nobody stole it. It was never there. She just budgeted using a number that measured something else.
This is why an MSME can be busy, sell well, collect on time and still be permanently short of cash. The shortfall does not show up as a bad month. It shows up as a rent payment that is always a little harder than it should be.
Keep this table. It converts any markup you add into the margin you actually earn.
The maths behind it is one line:
Margin = Markup ÷ (1 + Markup)
So a 40% markup gives 0.40 ÷ 1.40 = 0.286, or 28.6%.
Notice the last two rows. The old trader's rule of "just double it" is a 100% markup, and it produces exactly a 50% margin. That rule survives because it is one of the few cases where the number is easy to reason about.
If you want a real 40% margin, do not add 40%. Divide instead.
Price = Cost ÷ (1 − your target margin)
For Nkechi: ₦18,000 ÷ (1 − 0.40) = ₦18,000 ÷ 0.60 = ₦30,000.
Check it: ₦30,000 − ₦18,000 = ₦12,000 profit, and ₦12,000 ÷ ₦30,000 = 40%. Correct.
Here is the same idea as a lookup table:
Do not read this as "raise your prices". Nkechi cannot simply move from ₦25,200 to ₦30,000 and assume all 80 bundles still sell. The market decides that. The point is that she now knows her true margin is 28.6%, so she can make a real decision: lift the price, negotiate a better buying price, cut a cost, or accept 28.6% and budget honestly against it. Any of those beats planning around a number that was never true.
A margin is only as honest as the cost you measured it against. Most Nigerian MSMEs use the supplier's invoice price and stop there.
Your real cost per bundle is the landed cost:
If Nkechi's ₦18,000 bundle really costs ₦19,400 landed, then her ₦25,200 price is a 29.9% markup and a 23.0% margin, not 28.6%. The mix-up compounds.
One more caution for VAT-registered businesses: work your margin on the price before VAT. The 7.5% you collect is not your money, it is money you are holding for the Nigeria Revenue Service. Counting it as revenue inflates every margin you calculate. There is a fuller walk-through of that in our guide on whether your pricing is actually profitable.
Both are useful. They answer different questions.
The short version: markup is a pricing tool, margin is a management tool. Set prices with markup if that is easier. Run the business on margin.
The Lucrive pricing calculator is built around exactly this distinction, and it is worth knowing which field is which.
In the pricing step there is a field called Target Margin (%). Its tooltip is precise about what it does: "Profit percentage you want on top of all costs." On top of all costs means it behaves as a markup. Enter 40 and the recommended price comes out at your cost multiplied by 1.40, which is the ₦25,200 answer, not the ₦30,000 one.
So if you want a true 40% margin, enter 66.7 in that field, following the conversion table above. Enter 25 if you want a true 20% margin.
Then look at the Key Metrics panel on the results. The row labelled Margin % is the real margin: gross profit per unit divided by the selling price. That is the number to check your answer against. If you entered 66.7 as your target and Margin % reads close to 40%, you have priced it correctly.
Two more things worth understanding about those results:
There is also a Safety Buffer (%) field, applied to your cost before the margin is added, for the months when diesel, transport or a supplier price moves against you. It is capped at 5% on the Free plan.
A ten-minute exercise for this week: take your three best-selling items. Write down the landed cost and the selling price. Calculate profit ÷ selling price for each. If any of those margins is materially below what you thought you were earning, you have just found the reason your cash never matches your sales.
Nkechi did not have a pricing problem. She had a vocabulary problem, and it was worth ₦230,000 a month.
Adding a percentage to your cost and dividing profit by your price are two different operations that produce two different numbers, and only one of them tells you how your business is really doing.
Know which one you are quoting. Then price with it deliberately.
Work out your true margin, see your break-even and floor price, and price every product with the real number in front of you. Start for free at lucrive.io.
Sources & further reading