It’s important to have a Revenue Target to keep you focused week-to-week and month-to-month so that you have a goal to work towards.
However, how do you go about deciding what that revenue target should be? It’s actually fairly simple once you understand your numbers and the formula that you can use to calculate the revenue target.
So let’s start with the fundamental numbers first…
Firstly, you need to understand the basic structure of a Profit and Loss Statement and the key components of this report. The main components are:
The relationship goes like this (probably best explained in the example in the video):
Gross Profit = Sales – Cost of Sales
Net Profit = Gross Profit – Fixed Costs
Gross Profit Margin (%) = Gross Profit / Sales
Once you have this understanding then you can calculate the monthly (or weekly) revenue target for your business. The Revenue Target formula is as follows:
Revenue Target = (Fixed Costs + Profit Target) / Gross Profit Margin
Seriously, it’s not as complicated as it sounds and the video does the best job of explaining this using worked examples. Let me know if you need a hand or if you need this calculated for your specific business.
Happy number crunching!
By Anil Puri