What Profit do You Want to Make?
If you have set a goal for how much profit you want to make, you can use a variation of the break-even calculation to work out the number of sales you will need to make to reach your goal. To do this, simply add your profit target to your total fixed costs figure.
Quantity of Sales Needed to Make a Profit Formula
Value of Sales Needed to Make a Profit Formula
You can use either of these formulae to test the impact of possible changes. For example:
- If you are thinking about increasing your profit target, use this figure in the calculation to see how many more sales you will need to make to reach the new target.
- If you are considering bringing on more staff or increasing promotion costs in order to increase sales, add these costs to your total fixed costs. How many sales would you then need to make in order to reach your target profit level?
- See how changing your price (perhaps by offering a discount) will affect your required sales quantities.
Once you have done these calculations, think about what they mean. Is there anything you can do to improve both your overall amount of profit, as well as your profit margins?
Factor to Consider
Be careful to ensure you include the cost of any new strategies into your calculations. For instance, if you are considering increasing the amount of money you spend on promotion in order to achieve the sales quantities shown by your analysis, you will need to add this extra cost to your total fixed costs. This will increase the number of sales you need to make to reach your target profit.