Profit and Loss Calculation: Profit Percentage, Markup and Margin

The basic profit and loss formula

What you paid is the cost price; what you sold for is the selling price. The difference is your profit or loss:

Profit or loss = selling price − cost price

A positive result is a profit, a negative one is a loss, and zero is break-even.

• Bought for ৳80, sold for ৳100: profit 100 − 80 = ৳20.
• An item that cost ৳800 sold for ৳1,000: profit ৳200.
• The same ৳800 item sold for ৳600: 600 − 800 = −200, a loss of ৳200.

The cost price should include everything you spent on that item, not just its purchase price: delivery, packaging, a share of rent. Otherwise you show a profit on paper but not in your pocket. Enter the two prices in the Profit and Loss Calculator to see the profit or loss in Taka, the percentage and the margin together.

How to find the profit or loss percentage

Profit (or loss) % = profit (or loss) ÷ cost price × 100

In school profit and loss sums, unless a question says otherwise, the percentage is always on the cost price. The reason is simple: the question is what percentage you got back on the money you put in.

• Cost ৳80, selling ৳100: 20 ÷ 80 × 100 = 25% profit.
• Cost ৳800, loss ৳200: 200 ÷ 800 × 100 = 25% loss.
• Cost ৳100, selling ৳80: a ৳20 loss, which is a 20% loss.
• Giving away an item that cost ৳500 is a ৳500 loss, or 100% of the cost. A loss can never be more than 100%, but a profit can easily be.

Working backwards from a profit percentage

Selling price = cost × (1 + profit% ÷ 100) and cost = selling price ÷ (1 + profit% ÷ 100); for a loss, subtract instead of adding. To make 25% on an ৳800 item, sell it for 800 × 1.25 = ৳1,000. If something sold for ৳80 at a 20% loss, it cost 80 ÷ 0.80 = ৳100. You can do these reverse sums in the Percentage Calculator too.

Profit and loss sums: two step-by-step examples

1. Buying in bulk and selling singly

A shopkeeper buys 12 pens for ৳150 and sells each one for ৳15. What is the profit percentage?

1. Cost of one pen = 150 ÷ 12 = ৳12.50.
2. Profit on each = 15 − 12.50 = ৳2.50.
3. Profit % = 2.50 ÷ 12.50 × 100 = 20%.
4. Check: total sales 12 × 15 = ৳180, total profit ৳30, and 30 ÷ 150 × 100 = 20%. It matches.

Whether you work per item or in total, the percentage is the same. Just make sure both prices are for the same quantity: don’t compare the price of one pen with the price of a dozen.

2. The price that turns a loss into a profit

An item sold for ৳900 made a 10% loss. What price would have made a 10% profit?

1. ৳900 is 90% of the cost, so the cost = 900 ÷ 0.90 = ৳1,000.
2. At a 10% profit, the selling price = 1,000 × 1.10 = ৳1,100.

Adding 20% to ৳900 to get ৳1,080 is wrong here, because both percentages are on the cost, not on ৳900. Finding the cost first is the key to this kind of sum.

Markup vs margin: one profit, two percentages

Businesses use two percentages, and mixing them up is the most common mistake:

• Markup = profit ÷ cost price × 100. How much you added on top of what you paid. The “profit percentage” above is this.
• Margin = profit ÷ selling price × 100. How much of the sale money you keep as profit.

Both are useful. Markup is easier for setting prices, because you add a percentage straight onto what you paid. Margin is better for seeing how much of a month’s total sales you kept as profit. The profit is the same, but it is divided by a different price, so the numbers differ:

Doubling the price is a 100% markup but only a 50% margin. Margin can never reach 100%, because the profit can never be bigger than the selling price; markup has no upper limit. To convert one into the other:

• Margin = markup ÷ (100 + markup) × 100. For example 25 ÷ 125 × 100 = 20%.
• Markup = margin ÷ (100 − margin) × 100. For example 20 ÷ 80 × 100 = 25%.

The selling price for a target margin

When planning, many businesses set their profit target as a margin, such as “a quarter of every sale is profit”. For a 25% margin on an ৳800 item, the sum is not 800 × 1.25:

Selling price = cost price ÷ (1 − margin ÷ 100)

800 ÷ 0.75 = ৳1,066.67. Check: the profit is ৳266.67, which is 25% of ৳1,066.67. Selling at ৳1,000 instead gives a 25% markup but only a 20% margin. Always make sure which percentage is meant.

How a discount eats into profit

A discount on the marked price cuts profit much faster than its percentage suggests. Take an ৳800 item marked at ৳1,000 (a 25% markup):

• Sold at 10% off for ৳900: profit ৳100, or 12.5% on cost.
• Sold at 20% off for ৳800: no profit at all, exactly break-even. A 20% discount is enough to wipe out a 25% markup.
• Sold at 25% off for ৳750: not just no profit but a ৳50 loss, or 6.25% of the cost.

Work out the price after the discount in the Discount Calculator, then use that as the selling price to check your profit.

Common profit and loss mistakes

• Dividing by the selling price for profit percentage. ৳80 → ৳100 is a 25% profit, not 20%; 20% is the margin.
• Working out loss percentage on the selling price. ৳100 → ৳80 is a 20% loss on cost; ৳20 ÷ ৳80 = 25% is wrong.
• Treating a 25% markup as a 25% margin. You keep less from every sale than you planned.
• Leaving out other costs. If delivery, packaging or online payment charges are not in the cost price, the profit looks bigger than it is.
• Counting a VAT-inclusive price as income. An item bought for ৳800 excluding VAT and sold for ৳1,150 including VAT brings in ৳1,000, a profit of ৳200, not ৳350.

Check any cost and selling price in the Profit and Loss Calculator: it shows the profit or loss in Taka, the percentage on cost and the margin, to the paisa.