Target Profit Calculator
Calculate how many units you need to sell and how much revenue you need to generate to cover your costs and reach a specific target profit.
Calculate Required Sales for Target Profit
Enter fixed costs, desired profit, selling price, and variable cost per unit.
What Is a Target Profit Calculator?
A Target Profit Calculator estimates the sales volume a business needs to achieve a specific profit after covering both fixed and variable costs.
Unlike basic break-even analysis, which calculates the point where profit is zero, target profit analysis adds a desired profit amount to the costs that must be recovered.
How to Use the Target Profit Calculator
1. Enter Costs
Enter total fixed costs and the variable cost associated with each unit.
2. Set Your Profit Goal
Enter the selling price per unit and the amount of profit you want to earn.
3. Calculate Sales
Review the required units, required revenue, contribution margin, and expected profit.
Target Profit Formula
Target profit analysis begins with contribution margin. Each unit sold contributes a certain amount toward fixed costs and profit after variable costs have been paid.
Fixed costs and the desired profit are then divided by contribution margin per unit.
Target Profit Sales Revenue Formula
Required sales revenue can also be calculated using the contribution margin ratio.
Target Profit Calculation Example
Suppose a business wants to earn a target operating profit of $25,000 and has the following cost structure.
| Input | Example Value |
|---|---|
| Fixed Costs | $50,000 |
| Target Profit | $25,000 |
| Selling Price per Unit | $100 |
| Variable Cost per Unit | $40 |
The company would therefore need to sell approximately 1,250 units, generating $125,000 in sales revenue, to earn the desired $25,000 operating profit under these assumptions.
Target Profit vs. Break-Even Point
Break-even analysis and target profit analysis use the same contribution-margin concept, but their goals are different.
| Calculation | Formula | Purpose |
|---|---|---|
| Break-Even Units | Fixed Costs ÷ Contribution Margin | Finds the sales volume where operating profit is approximately zero. |
| Target Profit Units | (Fixed Costs + Target Profit) ÷ Contribution Margin | Finds the sales volume needed to reach a specific profit goal. |
Why Is Contribution Margin Important?
Contribution margin shows how much money from each additional unit remains after paying its variable costs.
This remaining amount first contributes toward fixed expenses. Once fixed costs are covered, additional contribution margin contributes toward operating profit.
A higher contribution margin generally means fewer units are required to reach the same profit target, assuming fixed costs and the desired profit remain unchanged.
How Price and Costs Affect Target Profit Units
| Change | General Effect |
|---|---|
| Higher Selling Price | Increases contribution margin and generally reduces required sales units. |
| Lower Selling Price | Reduces contribution margin and generally increases required units. |
| Higher Variable Cost | Reduces contribution margin and increases the required sales volume. |
| Lower Variable Cost | Increases contribution margin and reduces required units. |
| Higher Fixed Costs | More contribution margin must be generated before the target profit is achieved. |
| Higher Profit Target | Requires additional contribution margin and therefore more unit sales. |
Why Are Target Profit Units Rounded Up?
The mathematical calculation can produce a fractional number of units. For example, the required quantity may be 842.3 units.
If individual products cannot be sold in fractions, selling only 842 units would fall slightly short of the target profit. The practical minimum would therefore be 843 units.
Why Use Target Profit Analysis?
Target profit analysis can help businesses turn a desired profit amount into a measurable sales goal. It can be useful for budgeting, pricing, product planning, sales forecasting, and evaluating whether a profit objective is realistic.
It can also show how changes in price or costs affect the number of units a company must sell to reach the same profit target.
Businesses can use different scenarios to compare pricing strategies, cost reductions, profit objectives, and sales-volume requirements.