Target Profit Volume Calculator
The volume needed to hit a profit target rather than merely to break even, with the target stated either as an amount or as a margin on revenue. A margin target is the harder of the two, because the revenue it is a percentage of moves with the volume.
Also called: required sales volume calculator, profit target calculator.
1,200 units to reach the target, against 800 to break even. The first 800 units pay for the fixed costs and contribute nothing to profit. Every unit after that adds its full 500 of margin, which is why the last stretch to a target is easier than the first. Enter a tax rate if the profit target is stated after tax, in which case it has to be grossed up first.
The path to the target
| Units | Revenue | Profit | Share of the way |
|---|---|---|---|
| 0 | $0 | -$400,000 | 0% |
| 200 | $240,000 | -$300,000 | 17% |
| 400 | $480,000 | -$200,000 | 33% |
| 600 | $720,000 | -$100,000 | 50% |
| 800 | $960,000 | $0 | 67% |
| 1,000 | $1,200,000 | $100,000 | 83% |
| 1,200 | $1,440,000 | $200,000 | 100% |
How this is calculated
Above break-even every unit contributes its whole margin to profit, so a profit target simply adds to the fixed costs in the numerator. A margin target behaves differently: the profit required rises with revenue, so the equation has volume on both sides and rearranges to divide by the contribution ratio less the target margin. That denominator can go to zero or negative, which is the case where the target margin exceeds the contribution ratio and is therefore unreachable at any volume. The page says so rather than returning a large number. Where the target is stated after tax it is grossed up first, since the tax falls on the profit and not on the volume.
the target profit simply joins the fixed costs in the numerator, because above break-even every unit contributes its full margin to profit- π
- Target profit
Method and limits
What it assumes
- Linear costs across the volume range required.
What it deliberately does not model
- A target requiring volume far above current sales is a plan, not a calculation.
- Fixed costs usually step up before volume doubles, which this straight-line model does not capture.
Formula version 1.0.0 · definition 1.0.0 · United States · Report a problem with this calculator
Frequently asked questions
- Why can a margin target be impossible?
- Because a margin on revenue rises as revenue rises. If the target margin is above the contribution margin ratio, no volume reaches it: every extra unit adds more to the required profit than it adds in contribution.