Profit

Introduction  

Profit is a fundamental concept in business, accounting, and finance. Whether you run a small shop or a large corporation, knowing how profit works is key to measuring success. Let's explore what profit is, the profit formula, types of profit, and how to calculate profit percentage easily.

 

Table of Contents  

• What is Profit?
• Types of Profit
• Profit Formula
• Examples Using Profit Formula
• Importance of Profit in Business
• Conclusion
• FAQs On Profit

 

What is Profit?  

Profit is the financial gain a business or individual makes when the revenue from selling goods or services exceeds the cost of producing or acquiring them.  

In simple terms:  

Profit = Selling Price - Cost Price  

If the selling price is more than the cost price, there is a profit. If it's less, it's a loss.

 

Types of Profit  

There are various types of profit that help assess a business's financial health. The main types include:  

Gross Profit  

This is the profit a business makes after subtracting the cost of goods sold (COGS) from total revenue.  

Gross Profit Formula:  

Gross Profit = Revenue - Cost of Goods Sold  

 

Operating Profit  

This is the profit after deducting operating expenses like rent, salaries, and utilities from the gross profit.  

Operating Profit Formula:  

Operating Profit = Gross Profit - Operating Expenses  

 

Net Profit  

This is the actual profit left after all expenses, including taxes and interest, are deducted from total revenue.  

Net Profit Formula:  

Net Profit = Total Revenue - Total Expenses  

Each of these types of profit helps measure different levels of profitability in a business.

 

Profit Formula  

Basic Profit Formula

When a product is sold, the difference between the selling price and the cost price shows if a profit is made. If the selling price is greater than the cost price, the seller earns a profit.

Formula:
Profit = Selling Price - Cost Price

Example:  A shopkeeper buys a book for Rs.120/- and sells it for Rs.150/-. Find the profit gained by the shopkeeper.

Solution: Given Cost Price = Rs.120/-

And Selling Price = Rs.150/-

From the formula of profit, we know,

Profit = Selling Price - Cost Price

P = 150 - 120

P = 30

Therefore, the shopkeeper gains Rs 30/- from the business.

 

Profit Percentage Formula

Just knowing the profit amount is not always enough. Profit percentage tells us how much profit is earned for every 100 units of cost. This helps compare profitability across different items.

Formula:

$\text{Profit %} = \left( \frac{\text{Profit}}{\text{Cost Price}} \right) \times 100$

Example:

A merchant buys a pair of shoes for Rs.400/- and sells it for Rs.480/-. Find the profit and profit percentage.

Solution: Given Cost Price = Rs.400/-

And Selling Price = Rs.480/-

From the formula of profit, we know,

Profit = Selling Price - Cost Price

P = 480 - 400

P = 80

Profit % = (Profit ÷ Cost Price) × 100

Profit % = (80 ÷ 400) × 100

Profit % = 20%

Therefore, the merchant gains Rs.80/- from the business and the profit percentage is 20%.

 

Selling Price Formula

When you know the cost price (CP) of an item and the profit percentage, you can calculate the selling price by adding the profit to the cost. Profit is always calculated on the cost price.

Formula:
SP = CP + Profit
SP = CP × (1 + Profit% ÷ 100)

Example:
A man buys a chair for ₹800 and wants a profit of 20%.
Profit = (20 ÷ 100) × 800 = ₹160
SP = 800 + 160 = ₹960

Answer: Selling Price = ₹960

 

Cost Price Formula 

When the selling price (SP) and the profit percentage are given, but the cost price (CP) is unknown. In such cases, we remove the profit portion from the selling price to calculate the cost price.

Formula:
CP = SP ÷ (1 + Profit% ÷ 100)

Example: A mobile phone is sold for ₹18,000 at a profit of 20%. Find its cost price.

Solution: Given Selling Price = ₹18,000/-

And Profit % = 20%

From the formula of cost price, we know,

CP = SP ÷ (1 + Profit% ÷ 100)

CP = 18000 ÷ (1 + 20 ÷ 100)

CP = 18000 ÷ 1.2

CP = 15,000

Therefore, the cost price of the mobile phone is Rs.15,000/-.

These formulas are used in many business calculations, retail pricing strategies, and accounting. If someone asks about the formula of profit, it simply refers to these expressions used to compute financial gain.

 

Examples Using Profit Formula 

Solve the profit and loss questions given below using the formulas you have learned. Write the steps carefully and calculate the profit, loss, or selling/cost price as needed.

 

Example 1: A retailer buys a notebook for Rs.30/- and sells it for Rs.45/-. Find the profit and profit percentage.

Solution: Given Cost Price = Rs.30/-

And Selling Price = Rs.45/-

From the formula of profit, we know,

Profit = Selling Price – Cost Price

P = 45 – 30

P = 15

Profit % = (Profit ÷ Cost Price) × 100

Profit % = (15 ÷ 30) × 100

Profit % = 50%

Therefore, the retailer gains Rs.15/- from the business and the profit percentage is 50%.

 

Example 2: A vendor buys a packet of cookies for Rs.120/- and sells it for Rs.150/-. Find the profit and profit percentage.

Solution: Given Cost Price = Rs.120/-

And Selling Price = Rs.150/-

From the formula of profit, we know,

Profit = Selling Price – Cost Price

P = 150 – 120

P = 30

Profit % = (Profit ÷ Cost Price) × 100

Profit % = (30 ÷ 120) × 100

Profit % = 25%

Therefore, the vendor gains Rs.30/- from the business and the profit percentage is 25%.

 

Example 3:  A pair of shoes is sold for Rs.1,200/- at a profit of 25%. Find the cost price.

Solution: Given Selling Price = Rs.1,200/-

And Profit % = 25%

From the formula of cost price, we know,

CP = SP ÷ (1 + Profit% ÷ 100)

CP = 1200 ÷ (1 + 25 ÷ 100)

CP = 1200 ÷ 1.25

CP = 960

Therefore, the cost price of the shoes is Rs.960/-.

 

Example 4:  A book is bought for Rs.150/- and the shopkeeper wants to make a profit of 10%. Find the selling price.

Solution: Given Cost Price = Rs.150/-

And Profit % = 10%

From the formula of selling price, we know,

SP = CP + (Profit% of CP)

SP = 150 + (10 ÷ 100 × 150)

SP = 150 + 15

SP = 165

Therefore, the shopkeeper should sell the book for Rs.165/- to earn 10% profit.

These examples show how the profit formula and profit percentage formula work together.

 

Importance of Profit in Business  

• Profit helps evaluate business performance.  

• It enables reinvestment and business growth.  

• Profitable businesses create jobs and pay taxes.  

• Measuring profit using types like gross, net, and operating profit provides deeper insights.  

• Understanding profit, using the profit formula, and calculating profit percentage is essential for making good business decisions.

 

Conclusion  

Understanding profit is vital in both business and everyday life. Knowing what profit is, how to use the profit formula, and applying the profit percentage formula helps you make informed financial choices. The different types of profit, like gross, operating, and net, give a full view of a business’s financial health.  

Whether you're selling products, running a business, or studying commerce and math, knowing profit formulas and using them accurately leads to better outcomes. Mastering these concepts helps build a strong foundation for smarter budgeting, pricing, and tracking profitability.

 

 

Frequently Asked Questions on Profit

1. What do you mean by profit?

Answer: Profit is the financial gain obtained when the selling price of a product or service is more than its cost price.

2. What is the formula for profit?

Answer: The formula for profit is:
Profit = Selling Price  Cost Price

3. Is 7% a good profit margin?

Answer: A 7% profit margin is considered average or slightly low depending on the industry. For some businesses, it may be acceptable; for others, it's below target.

4. What is a profit in math?

Answer: In mathematics, profit refers to the amount by which the revenue from sales exceeds the expenses or cost of goods sold.

 

Explore more concepts like profit, loss, and percentage at Orchids The International School and master math the easy way!