How to calculate profit in a wholesale business
Real wholesale profit = sales before GST − cost of the goods you actually sold − running expenses − damaged or expired stock + supplier schemes. Work it out for a fixed period, like a month, and use the purchase cost of the batches that went out, not today's price.
By Munafa Book team · · 2 min read
Many wholesalers judge the month by how much cash came in or how big the sales were. Neither tells you profit. Cash includes old dues and excludes new credit; sales include GST that is not yours. Here is a simple method you can do with a notebook - or let an app do automatically.
Step 1: Take sales before GST
GST you collect belongs to the government. If your bills total ₹4,95,600 including GST, and the taxable value is ₹4,20,000, use ₹4,20,000. Subtract goods customers returned in the month.
Step 2: Cost of goods sold (COGS)
This is what you paid for the goods that went out - not everything you bought this month. If you sold 300 cases bought at ₹1,200 and 100 cases bought later at ₹1,260, COGS is 300 × 1,200 + 100 × 1,260 = ₹4,86,000 for that product. Use purchase prices before GST if you claim input tax credit.
This is why batch-wise costing matters. When prices rise, using today's purchase price for old stock understates your profit; using an old price overstates it.
Step 3: Gross profit and margin
Gross profit = net sales − COGS. Gross margin = gross profit ÷ net sales × 100. Wholesale margins are thin, often a few percent, so small mistakes in COGS swing the result a lot.
Step 4: Expenses, damages and schemes
- Expenses: vehicle fuel, driver and helper salary, godown rent, electricity, loading, phone.
- Stock loss: damaged, leaked and expired goods written off, at cost.
- Other income: supplier schemes and claims received as credit notes.
A worked example (one month)
| Item | Amount |
|---|---|
| Sales before GST | ₹4,20,000 |
| Less: cost of goods sold | ₹3,78,000 |
| Gross profit (10%) | ₹42,000 |
| Less: expenses | ₹14,500 |
| Less: damaged / expired stock | ₹2,100 |
| Add: supplier scheme credit | ₹0 |
| Net profit | ₹25,400 |
Which products and shops earn it?
The total hides a lot. Look at profit by product, by brand and by customer. Often a few high-volume products have almost no margin, and a handful of shops take long credit at your lowest rates. Our free margin calculator helps price single items.
Munafa Book does all of this automatically: each bill remembers the cost of the batch it took, expenses and write-offs are recorded in seconds, and the profit report shows net profit for any period and by product, brand, customer and area. See profit and loss.