Target Profit Calculator
Use this calculator to determine how many units of a product or service you need to sell to achieve a specific profit goal.
Enter your desired target profit, total fixed costs, selling price per unit, and variable cost per unit. The calculator will tell you the number of units required.
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Understanding Target Profit & Calculation
What is Target Profit?
Target profit is the specific amount of profit a company or business unit aims to achieve within a certain period. Setting a target profit helps in planning, budgeting, and evaluating performance.
The Formula
The calculation for the number of units required to reach a target profit is based on the relationship between revenue, costs, and profit:
Total Revenue - Total Costs = Target Profit
Expanding this:
(Required Units * Selling Price Per Unit) - (Total Fixed Costs + (Required Units * Variable Cost Per Unit)) = Target Profit
Rearranging to solve for Required Units:
Required Units * (Selling Price Per Unit - Variable Cost Per Unit) = Target Profit + Total Fixed Costs
The term (Selling Price Per Unit - Variable Cost Per Unit) is known as the **Contribution Margin Per Unit**. It represents the revenue from one unit that contributes towards covering fixed costs and generating profit.
So, the final formula is:
Required Units = (Target Profit + Total Fixed Costs) / Contribution Margin Per Unit
Or equivalently:
Required Units = (Target Profit + Total Fixed Costs) / (Selling Price Per Unit - Variable Cost Per Unit)
Key Terms:
- Target Profit: The profit you want to achieve.
- Fixed Costs: Expenses that do not change with the volume of goods or services produced/sold (e.g., rent, salaries, insurance).
- Variable Costs: Expenses that vary directly with the volume of goods or services produced/sold (e.g., raw materials, direct labor, sales commissions).
- Selling Price Per Unit: The price at which one unit is sold.
- Contribution Margin Per Unit: The amount from each unit sale that contributes to covering fixed costs and profit (Selling Price - Variable Cost).
Note: If the Selling Price Per Unit is less than or equal to the Variable Cost Per Unit, it's impossible to make a profit, and the calculation will show an error.
Target Profit Calculation Examples
Here are some examples of how the calculator can be used:
Example 1: Simple Product
Scenario: A small business sells handcrafted items.
Inputs:
- Target Profit: $5,000
- Total Fixed Costs: $2,000 (rent, utilities)
- Selling Price Per Unit: $50
- Variable Cost Per Unit: $15 (materials, labor)
Calculation:
Contribution Margin Per Unit = $50 - $15 = $35
Required Units = ($5,000 + $2,000) / $35 = $7,000 / $35 = 200 units
Result: They need to sell 200 units.
Example 2: Service Business
Scenario: A freelance consultant wants to know how many hours to bill.
Inputs:
- Target Profit: $10,000
- Total Fixed Costs: $3,000 (software subscriptions, home office costs)
- Selling Price Per Unit (per hour): $100
- Variable Cost Per Unit (per hour): $10 (misc supplies, specific project costs)
Calculation:
Contribution Margin Per Hour = $100 - $10 = $90
Required Units (Hours) = ($10,000 + $3,000) / $90 = $13,000 / $90 ≈ 144.44 hours
Result: They need to bill approximately 145 hours.
Example 3: Online Course
Scenario: Selling an online course with high fixed costs for creation but low variable costs per sale.
Inputs:
- Target Profit: $20,000
- Total Fixed Costs: $15,000 (course development, platform fees)
- Selling Price Per Unit (per course): $299
- Variable Cost Per Unit (per sale): $15 (transaction fees, minimal hosting)
Calculation:
Contribution Margin Per Unit = $299 - $15 = $284
Required Units = ($20,000 + $15,000) / $284 = $35,000 / $284 ≈ 123.24 units
Result: They need to sell approximately 124 courses.
Example 4: Physical Retail Product
Scenario: A retail store selling t-shirts.
Inputs:
- Target Profit: $8,000
- Total Fixed Costs: $4,000 (store rent, staff salaries)
- Selling Price Per Unit: $25
- Variable Cost Per Unit: $10 (cost of t-shirt, packaging)
Calculation:
Contribution Margin Per Unit = $25 - $10 = $15
Required Units = ($8,000 + $4,000) / $15 = $12,000 / $15 = 800 units
Result: They need to sell 800 t-shirts.
Example 5: Software Subscription
Scenario: A SaaS company selling subscriptions.
Inputs:
- Target Profit: $50,000
- Total Fixed Costs: $30,000 (developer salaries, infrastructure)
- Selling Price Per Unit (per subscription): $50
- Variable Cost Per Unit (per subscription): $5 (support costs, hosting per user)
Calculation:
Contribution Margin Per Unit = $50 - $5 = $45
Required Units = ($50,000 + $30,000) / $45 = $80,000 / $45 ≈ 1777.78 units
Result: They need approximately 1778 subscriptions.
Example 6: Event Planning
Scenario: An event planner budgeting for a concert.
Inputs:
- Target Profit: $15,000
- Total Fixed Costs: $25,000 (venue rental, artist fees, marketing)
- Selling Price Per Unit (per ticket): $75
- Variable Cost Per Unit (per attendee): $10 (staffing per attendee, materials)
Calculation:
Contribution Margin Per Unit = $75 - $10 = $65
Required Units (Tickets) = ($15,000 + $25,000) / $65 = $40,000 / $65 ≈ 615.38 units
Result: They need to sell approximately 616 tickets.
Example 7: Break-Even Point (Target Profit = 0)
Scenario: Finding the units needed just to cover costs (Break-Even Point).
Inputs:
- Target Profit: $0
- Total Fixed Costs: $6,000
- Selling Price Per Unit: $40
- Variable Cost Per Unit: $20
Calculation:
Contribution Margin Per Unit = $40 - $20 = $20
Required Units = ($0 + $6,000) / $20 = $6,000 / $20 = 300 units
Result: The break-even point is 300 units.
Example 8: Product with Low Contribution Margin
Scenario: Selling a high-volume, low-margin product.
Inputs:
- Target Profit: $1,000
- Total Fixed Costs: $500
- Selling Price Per Unit: $10
- Variable Cost Per Unit: $8
Calculation:
Contribution Margin Per Unit = $10 - $8 = $2
Required Units = ($1,000 + $500) / $2 = $1,500 / $2 = 750 units
Result: They need to sell 750 units due to the low margin.
Example 9: Requires Many Units (High Fixed Costs, Low Margin)
Scenario: A startup with high initial fixed costs and a competitive low price.
Inputs:
- Target Profit: $30,000
- Total Fixed Costs: $50,000
- Selling Price Per Unit: $20
- Variable Cost Per Unit: $12
Calculation:
Contribution Margin Per Unit = $20 - $12 = $8
Required Units = ($30,000 + $50,000) / $8 = $80,000 / $8 = 10,000 units
Result: They need to sell 10,000 units to reach the target profit.
Example 10: Using Different Currencies (Units Must Be Consistent)
Scenario: Using the calculator with Euros (€).
Inputs: (All in Euros)
- Target Profit: €10,000
- Total Fixed Costs: €4,000
- Selling Price Per Unit: €60
- Variable Cost Per Unit: €25
Calculation:
Contribution Margin Per Unit = €60 - €25 = €35
Required Units = (€10,000 + €4,000) / €35 = €14,000 / €35 = 400 units
Result: They need to sell 400 units. (The currency used consistently doesn't change the unit count).
Frequently Asked Questions about Target Profit
1. What is the purpose of calculating Target Profit units?
It helps businesses understand the sales volume needed to achieve a specific financial goal, aiding in sales forecasting, budgeting, and performance measurement.
2. What is the difference between fixed and variable costs?
Fixed costs remain constant regardless of production or sales volume (like rent), while variable costs change directly with volume (like raw materials).
3. What is Contribution Margin Per Unit?
It's the selling price per unit minus the variable cost per unit. This amount contributes towards covering fixed costs and generating profit.
4. How is this calculation related to Break-Even Analysis?
The break-even point is a special case of the target profit calculation where the target profit is set to zero. It shows the units needed to just cover all costs.
5. Can I use this calculator for different currencies?
Yes, but you must use a consistent currency for all four inputs (Target Profit, Fixed Costs, Selling Price, Variable Cost). The resulting "Required Units" is a count, not a monetary value.
6. What happens if my Selling Price is less than or equal to my Variable Cost?
The calculator will show an error. If the selling price per unit does not cover the variable cost per unit, each sale results in a loss (or zero contribution margin), making it impossible to cover fixed costs or achieve a positive profit through sales volume alone.
7. Does this calculator work for multiple products?
This basic calculator is designed for a single product or service. For multiple products, you typically need to calculate a weighted average contribution margin based on the sales mix of each product.
8. Are there any limitations to this model?
Yes, it assumes that selling price and variable costs per unit remain constant regardless of volume, that all units produced are sold, and that fixed costs remain fixed within the relevant range of production/sales. Real-world scenarios can be more complex.
9. What if I want to calculate the target *revenue* instead of units?
Once you have the "Required Units", simply multiply that number by the "Selling Price Per Unit" to find the total revenue needed.
10. How can I increase my profit without selling more units?
You can increase profit by increasing the selling price per unit, decreasing variable cost per unit (improving contribution margin), or decreasing total fixed costs.
