OPERATOR TOOL
Target profit sales
Calculate the sales level needed to cover fixed costs and produce a chosen operating profit at your modeled variable-cost rate.
Result
Enter the cost structure and target profit, then calculate.
Contribution margin ratio
Break-even sales
Sales required for target profit
Sales above break-even
Formula
Contribution margin ratio = 1 − Variable cost %
Break-even sales = Fixed costs ÷ Contribution margin ratio
Target-profit sales = (Fixed costs + Target profit) ÷ Contribution margin ratio
Worked example
Illustrative only. Fixed operating costs of $12,000 and variable costs equal to 60% of sales produce a 40% contribution margin ratio. Break-even sales are $30,000. To generate $8,000 of modeled operating profit, required sales are $50,000.
How to read the result
The result is only as useful as the cost assumptions behind it. Recalculate when variable-cost rate, rent, management structure or other fixed commitments change materially. Use realistic downside and base cases rather than treating one target as guaranteed.
Common mistakes
- Entering a gross-margin percentage where the model expects variable cost percentage.
- Leaving major fixed operating costs out of the model.
- Treating target profit as cash available for owner withdrawal.
- Assuming sales can rise without changing labor or other variable costs.
Questions operators ask
How is this different from break-even?
Break-even targets zero modeled operating profit. Target-profit sales add the desired operating profit to fixed costs before dividing by the contribution margin ratio.
Can I use this for a weekly target?
Yes, if fixed costs, target profit and variable-cost assumptions all refer to the same weekly period.
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