Profit, Loss, and Discount are among the most scoring topics in competitive exams like Banking, Regulatory bodies and other government exams. These concepts help you understand how selling, buying, and discounting work in real-life business transactions. With basic formulas and simple logic, you can solve these questions quickly and accurately.
Profit, Loss & Discount – Concept + Formula
Profit, Loss & Discount are essential concepts in arithmetic that help determine the financial outcome of buying and selling goods. Profit occurs when the Selling Price (SP) is greater than the Cost Price (CP), while Loss happens when CP exceeds SP. The Marked Price (MP) is the printed price on an item, and the Discount is the reduction given on it to attract customers.
Key formulas include
Profit = SP – CP,
Loss = CP – SP,
Profit% = (Profit/CP) × 100,
Loss% = (Loss/CP) × 100,
Discount = MP – SP, and
Discount% = (Discount/MP) × 100.
Understanding these basics helps solve exam questions quickly and improves real-life financial decision-making.
What is Cost Price (CP)?
Cost Price (CP) is the amount a seller spends to acquire or produce an item before selling it. It includes all expenses involved in bringing the product to a saleable condition such as buying cost, transportation charges, manufacturing cost, taxes, and packaging. In simple terms, CP is the base value used to calculate profit or loss in any transaction.
Example:
If you buy a book for ₹200, its CP = ₹200.
If you also spend ₹20 on packaging or transport, the total CP becomes ₹220.
What is Selling Price (SP)?
Selling Price (SP) is the amount at which an item is sold to a customer. It is the final price a buyer pays after including or excluding any additional charges, taxes, or discounts. SP directly determines whether the seller makes a profit or incurs a loss when compared with the Cost Price. Businesses often adjust the SP based on market demand, competition, and pricing strategy.
Example:
If you sell a book for ₹250, its SP = ₹250.
If a discount of ₹20 is applied on the Marked Price, and the customer pays ₹230, then SP = ₹230.
What is Profit?
Profit is the financial gain a seller earns when the Selling Price (SP) of an item is higher than its Cost Price (CP). It represents the extra amount received over and above the cost of acquiring or producing the item. Profit is a key indicator of business performance, helping sellers understand how well they are pricing and selling their products. Higher profit means better earnings, efficient pricing, and successful sales strategy.
Formula:
Profit = SP – CP
Example:
If you buy an item for ₹500 (CP) and sell it for ₹650 (SP),
Profit = ₹650 – ₹500 = ₹150
Businesses aim to maximize profit by reducing costs, improving product quality, or increasing sales price without losing customers.
Profit Percentage Formula
Profit% = (Profit / CP) × 100
Example: Profit = 50, CP = 200
Profit% = (50/200) × 100 = 25%
What is Loss?
Loss occurs when the Selling Price (SP) of an item is less than its Cost Price (CP). It represents the amount of money a seller loses in a transaction. Loss usually happens due to urgent selling, low demand, market competition, damage to goods, or reducing prices to attract customers. Understanding loss helps businesses adjust pricing strategies and prevent future financial setbacks.
Formula:
Loss = CP – SP
Example:
If you purchase an item for ₹800 (CP) and sell it for ₹700 (SP),
Loss = ₹800 – ₹700 = ₹100
Maintaining a good balance between cost, pricing, and demand is essential to avoid losses in business.
Loss Percentage Formula
Loss% = (Loss / CP) × 100
Example: Loss = 50, CP = 500
Loss% = (50/500) × 100 = 10%
What is Marked Price (MP)?
Marked Price (MP) is the price printed, tagged, or displayed on a product before any discount is applied. It is also called the list price or label price. Sellers usually keep the MP higher than the actual Cost Price (CP) so they can offer discounts while still earning profit. The MP helps customers understand the original value of the product and allows sellers to run sales, offers, and promotional pricing.
Example:
If a shirt has a printed price of ₹1,200, then its MP = ₹1,200
If a 20% discount is given, the actual Selling Price will be lower than the Marked Price.
The Marked Price is important in calculating discount percentage and determining final selling price during sales or offers.
What is Discount?
Discount is the reduction given on the Marked Price (MP) of an item to attract customers and increase sales. It is a common pricing strategy used during sales, festivals, and promotions. A discount lowers the price a buyer pays, while still allowing sellers to make a profit if the Marked Price is set higher than the Cost Price (CP). Discounts can be offered as a fixed amount or a percentage.
Formula:
Discount = MP – SP
Example:
If the Marked Price of a bag is ₹1,500 and it is sold for ₹1,200,
Discount = ₹1,500 – ₹1,200 = ₹300
Discounts help clear old stock, boost customer attraction, and increase overall sales volume
Selling Price After Discount
SP = MP – Discount
SP = MP × (1 – Discount%)
Example: MP = 2000, Discount = 10%
SP = 2000 × (1 – 0.10) = ₹1800
Relation Between Cost Price, Selling Price & Profit/Loss
-
If SP > CP = Profit
-
If SP < CP = Loss
-
If SP = CP = No Profit, No Loss
Formulas
-
Profit = SP – CP
-
Loss = CP – SP
-
Profit% = (Profit / CP) × 100
-
Loss% = (Loss / CP) × 100
-
Discount = MP – SP
-
Discount% = (Discount / MP) × 100
-
SP after discount = MP × (100 – Discount%) / 100
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