Revenue and Profit Calculations
Revenue and profit questions appear frequently in numerical reasoning tests for business, finance and consulting roles. Here are the key formulas and how to use them.
Basic Relationships
Revenue (or Sales) = Price × Quantity
Profit = Revenue − Costs
Costs can be fixed (rent, salaries) or variable (materials, commissions). Total cost = Fixed + Variable.
Profit Margins
Gross profit margin = (Revenue − Cost of goods sold) ÷ Revenue × 100
Operating profit margin = Operating profit ÷ Revenue × 100
Net profit margin = Net profit ÷ Revenue × 100
The denominator is always revenue, not cost or profit. A 20% margin means 20 cents of profit per £1 of revenue.
Markup vs Margin
Markup = (Selling price − Cost) ÷ Cost × 100. How much you add on top of cost.
Margin = (Selling price − Cost) ÷ Selling price × 100. What fraction of the selling price is profit.
Example: Cost 80, Selling price 100. Markup = (100 − 80) ÷ 80 = 25%. Margin = (100 − 80) ÷ 100 = 20%. Don't confuse them.
Common Question Types
- "What was total revenue?" – Sum sales across products/regions, or Price × Quantity.
- "What was the profit margin?" – Profit ÷ Revenue × 100.
- "If costs increase by X%, what happens to profit?" – Recalculate costs, then profit = Revenue − New costs.
- "How many units to break even?" – Fixed costs ÷ (Price − Variable cost per unit).
Practice with numerical reasoning questions and the numerical reasoning test.
Frequently Asked Questions
What's the difference between gross and net profit?
Gross profit = Revenue − Cost of goods sold (direct costs of producing what you sell). Net profit = Revenue − All costs (including overhead, interest, tax). Operating profit is after overhead but before interest and tax.
How do I calculate revenue when I have units and price per unit?
Revenue = Units sold × Price per unit. Watch for units in thousands—if the table says "Sales (000)", multiply by 1000 to get actual revenue, or keep consistent with what the question asks.
What if the question gives margin and asks for profit?
Profit = Revenue × (Margin ÷ 100). E.g. Revenue 500, margin 15%. Profit = 500 × 0.15 = 75.