Profit Loss Percentage: Definition, Formula & Examples

Profit and loss Percentage are the concepts that are used to refer to the amount of profit or loss that has been incurred in terms of percentage. Profit and loss is a concept that has evolved from many applications to real-life difficulties that occur virtually every day in our lives. A profit is made when a product is repurchased at a higher price. Similarly, there is a loss if the item is purchased at a lower price. When a good is sold, one can either gain a profit or bear a loss, which is usually calculated in terms of percentage. Every firm and organisation is based on the profit and loss principle.

Read Also: Selling Price Formula

Key Takeaways: Profit, Loss, Cost Price, Selling Price, Loss Percentage, Profit Percentage, Marked Price, Discount

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What is Profit Loss Percentage?

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The term "profit and loss percentage" refers to the amount of profit or loss that has been incurred in percentage terms. Profit percentage is used to express profit generated as a percentage, while Loss percentage is used to express loss generated as a percentage. Whether it is a profit or a loss percentage, the cost price is more distinctive. Another well-known example is the purchase and sale of things. 

It's important to know that using the percentage is one of the ways for comparing two data. Every day, we are faced with a variety of situations in which we must compute or compare something in per cent. Hence in order to calculate profit or loss on an item, one must do so in percentages. 

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Profit Loss Percentage: Some Terminologies Along with Formulas

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We need to familiarise ourselves with a few phrases that are commonly used in sales/purchasing of commodities before we go through profit and loss per cent.

• Cost Price: The cost price of an item is the price at which it is purchased. For example, if Neil paid Rs. 8 for an umbrella, this is the umbrella's cost price. The abbreviation is C.P.
• Selling Price: The selling price of an item refers to the price at which it is purchased. For example, if Neil sold the identical umbrella for Rs 10, the umbrella's selling price is Rs 10. The abbreviation is S.P.
• Profit: When the selling price exceeds the cost price in a transaction, we have made a profit. According to the example above, Neil made a profit of Rs. 2. 

Profit = Selling Price - Cost Price

Because the umbrella's cost price was Rs. 8 and its selling price was Rs. 10 in the example above, the profit he made may be computed using the formula: Profit = Selling price - Cost price. We get Profit = 10 - 8 = 2 by substituting the data. As a result, he makes an Rs.2 profit.

• Loss: When the cost price is higher than the selling price in a transaction, we lose money. For example, if a bag costs Rs. 20 and is sold for Rs. 17, we have lost Rs. 3 on this transaction. The formula for calculating loss is 

Loss = Cost Price - Selling Price 

In the same example, the bag's Cost price is Rs. 20 and its Selling price is Rs. 17, hence the loss can be determined using the following formula: Loss = Cost price - Selling price. We get Loss = 20 - 17 = 3 by substituting the variables. As a result, the sale results in an Rs. 3 loss.

Check Important Notes for Comparing Quantities

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Profit Loss Percentage Formula 

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Follow the steps to learn how to calculate the percentage of profit and loss:

• Take note of a product's selling price and cost price first.
• Calculate the profit and loss using the formulas- Profit = S.P – C.P and Loss = C.P – S.P.
• Enter the obtained Profit and Loss in the profit and loss percentage formulas.

Profit Percentage = (Profit/Cost Price)*100

Loss Percentage = (Loss/Cost Price)*100

Let us understand the concept with the help of some examples: 

Example 1: For Rs. 22500, a second-hand car dealer purchased a vehicle. It was sold for Rs. 27000 a week later. Calculate the profit on the car's sale and represent it as a percentage of the purchase price.

Solution: The cost price of the car = Rs. 22500

Selling price of the car = Rs. 27000

Selling price > Cost price

Profit = 27000-22500

Profit = Rs. 4500

Profit % = (4500/22500)x100%

= 20%

So, the required profit is 20%.

Example 2: For Rs. 1.20 each, a news agent purchases 120 magazines. Determine if the newsagent made a profit or a loss if only 72 magazines were sold for Rs 1.95 each. As a proportion of the cost price, calculate the profit or loss percentage.

Solution: The number of magazines the newsagent bought = Rs.120

Number of magazines sold out = Rs. 72

Cost price of one magazine = Rs. 1.20

Selling price of one magazine = Rs.1.95

Amount He Invested = 120(1.20)

Cost price = Rs. 144

Selling price = Rs. 72(1.95)

= Rs. 140.4

Loss = Rs. (144 - 140.4)

= Rs. 3.6

Loss % = (3.6/144) x 100%

= 2.5%

So, 2.5% loss happened.

Read More: Ratio to Percentage Formula and Conversion

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Things to Remember

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• When a product or service is sold for a price higher than its cost price, the seller makes a profit.
• When a product or service is sold at a lower selling price than its cost price, the seller suffers a loss.
• When the selling price (SP) and cost price (CP) are given, profit (P) is determined using the formula Profit (P)= Selling Price (SP) - Cost Price (CP).
• When both the selling price (SP) and the cost price (CP) are known, Loss (L)= Cost Price (CP)-Selling Price (SP) is determined.
• Profit percentages are used to express profit as a percentage, whereas loss percentages are used to convey loss as a percentage. Hence, Profit percentage = (Profit/Cost Price)*100, and Loss percentage = (Loss/Cost Price)*100.