Enter the gross margin (%), total revenue, and the total fixed cost into the calculator to determine the target profit.
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Target Profit Formula
The following formula is used to calculate a target profit.
TP = R*GM – FC
- Where TP is the target profit ($)
- R is the total revenue ($)
- GM is the gross margin
- FC is the fixed cost ($)
Target Profit Definition
A target profit is defined as the profit that a company wishes to achieve through a total revenue, gross margin, and fixed cost.
Target Profit Example
How to calculate target profit?
- First, determine the gross margin.
Determine the average margin the business earns as a percentage of cost to revenue.
- Next, determine the total revenue.
Calculate the total revenue generated by the business.
- Next, determine the total fixed costs.
Calculate the total fixed costs for the business or segment.
- Finally, calculate the target profit.
Using the formula calculate the target profit.
A target profit is a specific total amount of profit a company or business wishes to achieve based on fixed cost, revenue, and margin. Changing a target profit requires a change in one of those three metrics, meaning that to increase target profit you need to increase margin, increase revenue, or decrease costs.