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A simple way to work out how much you need to sell to hit your revenue targets

I was with a client recently and they shared how much money they wanted to be able to take out of the business in the long term.

So what we needed to do was some maths to work out how to get there.

And here is what we did. I’m going to make up the figures to preserve anonymity.

They ultimately wanted to be able to take £5000 a month from the business.

Stage 1 – identify current revenue and profit margins

1. Identify current annual revenue (sales or turnover)
2. Identify the net profit (the amount left over after all costs have been taken out)
3. Calculate the net profit margin

Current revenue – £50,000
Current net profit – £20,000
Net profit margin – £20,000/£50,000 = 0.4
Multiply by 100 to give a percentage of 40%

The current net profit is giving on average £1,666 a month (£20,000/12 months)

Stage 2 – calculate revenue needed to make what you want to take out of the business each month

Calculate how much revenue is needed to clear £5,000 a month.
We now need to work backwards.

1. Multiply £5,000 by 12 months to get an annual net profit figure = £60,000
2. Assuming the net profit margin is the same at 40% divide the £60,000 by 40 to give you 1% and then multiply that by 100 to give you 100% i.e. the revenue you need.
£60,000 divided by 40 = £1,500
Multiply by 100 = £150,000
So now we know that in order to be able to take out £5,000 a month, they need to generate sales of £150,000.

Stage 3 – Calculate product sales

Calculate how many products/services you need to sell in order to make £150,000
1. The simplest way is to look at the revenue from your product sales and divide it by the number of sales to give you an average product sale
In this example let’s say that the £50,000 was entirely from product sales and 200 were sold.
2. Therefore the average product sale is £50,000 divided by 200 = £250
3. To calculate how many products you need to sell to make £150,000, divide this figure by £250
= 600 product sales

If you have a range of different price products, you may need to do a slightly more complex calculation to get a weighted average, but I’m keeping it simple here.

What next?

You then have to ask yourself
– What do I need to do to make 600 sales?
– Do I have the capacity to do this myself?
– If not, what steps do I need to take to get there?

I recommend breaking the end target down into smaller ones so that the £150k target is your aim over say three years.
But in a year’s time you want to get to £75k of sales which is much more achievable, then in year two aim for £100k and so on. And do the maths for each of those.
Then break it down into monthly sales targets and monitor it.

To help, I’ve created a handy excel calculator for you which you can download here

Note: I’ve ignored at this stage, any other factors such as reinvestment in the business as I’ve assumed those figures are already in the ‘costs’.

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About the Author:

About Karen Espley, blogging for The Chameleon GuideKaren Espley of The Chameleon Guide works with ambitious small business owners on her Profit Accelerator Programme. She brings pragmatic and real world advice in a group setting to help her clients make a significant difference to their business through increasing profits and running a highly effective business.

Offering workshops and group profit programmes for companies wanting to reach their full potential.