Gross and net margins after costs, expenses and corporate tax.
Net profit margin (after tax)
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Gross profit
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Gross margin
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Corporate tax (30%)
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Profit after tax
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Two margins, two very different stories
People often say "margin" as if it were one number, but a Kenyan business actually has several, and the gap between them is where the real lessons hide. Gross margin tells you whether the core trade works: it is what is left after the direct cost of whatever you sell. Net margin, after operating expenses and tax, tells you whether the whole company works. A shop can have a healthy gross margin and still bleed cash if rent, salaries and the KRA take more than the gross profit covers. This calculator walks revenue down through both, so you can see where the money actually goes.
The tool subtracts cost of sales from revenue to get gross profit, takes off operating expenses to reach profit before tax, applies corporate income tax at the rate it models, which is 30 percent on the profit before tax, and leaves you with profit after tax. Both margins are expressed as a share of revenue. The 30 percent is the resident company rate the calculator applies; it is the established headline figure, though you should confirm it against the current KRA position, since rates and reliefs shift with each Finance Act.
Walking KES 5 million down to take-home profit
Picture a trading business with KES 5 million in revenue, net of VAT, KES 3 million in cost of sales and KES 1 million in operating expenses. Using the rate this calculator applies, the waterfall looks like this.
| Line | Amount | As share of revenue |
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Read across the bottom and the point lands: a 40 percent gross margin shrank to a 14 percent net margin once expenses and tax were paid. The KES 300,000 going to tax is not a fee on revenue, it is 30 percent of the KES 1 million profit before tax. That distinction matters when you model a price cut, because a small drop in price comes straight off the thinnest line, the net profit, not the comfortable gross figure.
Why you feed it revenue net of VAT
The input label asks for revenue net of VAT for a reason. VAT, charged at 16 percent on most taxable supplies as the standard rate, is money you collect on behalf of the KRA and pass on; it was never your income. If you typed your VAT-inclusive sales into the revenue box, every margin would look thinner than reality because the denominator would be inflated by tax you do not keep. Strip it out first and the percentages describe your actual trading performance.
The one assumption to check before you trust the tax line
This calculator applies a flat 30 percent to any positive profit before tax, which is the right default for a resident company on ordinary trading income. It does not switch regimes for you, and Kenyan tax law has a few that change the answer. Very small businesses with annual turnover roughly between KES 1 million and KES 25 million may fall under turnover tax, charged at 3 percent of gross turnover rather than on profit, which is a different calculation entirely. Some businesses qualify for reduced rates under special economic zone or other incentive rules. If any of those could apply to you, the 30 percent here is the wrong lens, and the KRA or a tax adviser can confirm which regime you sit in.
What counts as cost of sales versus an operating expense?
Cost of sales is the direct cost of producing what you sold: stock you bought to resell, raw materials, direct labour on a product. Operating expenses are the costs of running the business regardless of a single sale: rent, admin salaries, marketing, software, utilities. Putting rent in cost of sales would flatter your gross margin while leaving net margin unchanged, so the split is worth getting right if you compare gross margins over time.
Is corporate tax really charged even when profit is small?
The calculator charges 30 percent on whatever positive profit before tax you enter, and zero if that figure is nil or negative. In practice a loss-making year produces no corporate tax and the loss can usually be carried forward to offset future profits, which this single-period tool does not attempt to model. Treat the tax figure as the charge for one profitable year in isolation.
Why is my net margin so much lower than competitors quote?
Often it is because the headline a competitor publishes is a gross margin, not a net one, or it excludes tax. Compare like for like. A 40 percent gross margin and a 14 percent after-tax net margin can describe the very same business, so always ask which line of the waterfall a quoted percentage refers to.