Accountants Profit Target Calculator
Calculate the sales revenue needed to reach a target operating profit after fixed costs and variable expenses.
Overview
Use this Accountants Profit Target Calculator to estimate the revenue a business needs to generate a chosen operating profit. Enter the target profit, fixed costs, variable costs as a percentage of sales, and current or forecast revenue for the same reporting period.
How it works
The calculator first finds the contribution margin by subtracting the variable cost percentage from 100%. It then divides fixed costs plus the desired operating profit by that contribution margin. This produces the sales revenue required to cover variable costs, recover fixed costs and leave the target profit. It also compares this figure with forecast revenue to show any additional sales required.
How to use this calculator
- 1Enter the pre-tax operating profit target for the period.
- 2Add all relevant fixed costs for that period.
- 3Estimate variable costs as a percentage of sales.
- 4Enter current or forecast revenue for comparison.
- 5Review the required revenue and any remaining sales shortfall.
Example Calculation
Target operating profit
$100,000
Fixed costs
$150,000
Variable costs as a percentage of sales
40%
Current or forecast revenue
$300,000
Revenue needed to reach target
$416,667
With a 60% contribution margin, the business needs estimated revenue of 416,667 to make a 100,000 operating profit. Compared with forecast revenue of 300,000, the sales shortfall is about 116,667.
Frequently asked questions
What is a profit target calculator?
It estimates the revenue needed to achieve a chosen operating profit after allowing for fixed and variable costs.
What are fixed costs?
Fixed costs are expenses that usually do not move directly with sales volume over the period, such as rent, core salaries, software subscriptions and insurance.
What counts as a variable cost?
Variable costs generally rise or fall with sales, for example materials, sales commissions, merchant fees, fulfilment and delivery costs.
What is contribution margin?
Contribution margin is the part of each sales amount left after variable costs. It contributes toward fixed costs and then profit.
Does the calculator include tax?
No. The target is treated as pre-tax operating profit. Taxes, interest, exceptional items and other adjustments should be considered separately where relevant.
Why might actual profit differ from the result?
Actual results can differ when prices, sales mix, discounts, returns, cost behaviour or fixed costs change from the assumptions used.
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Assumptions and warnings
Assumptions
- The target profit is a pre-tax operating profit for the same period as the costs and revenue entered.
- Variable costs are assumed to remain at the same percentage of revenue across the relevant sales range.
- Fixed costs are assumed to remain unchanged within the period and expected activity range.
- The calculation excludes financing costs, taxes, exceptional items and changes in working capital unless included in your cost figures.
- Results are planning estimates and depend on accurate cost classification and forecasts.
Warnings
- This calculator provides an estimate only and is not accounting, tax or financial advice.
- Review assumptions, cost behaviour and pricing before making significant business decisions.