A question we often get asked is how many sales do I need to make to make the profit I desire?
So what is that magic number for you?
Most business owners are wishy-washy with their sales numbers and will either just take whatever that comes their way or they think ‘as much as they can’.
However, if you are able to know the specific number to aim for, you can focus your efforts on getting that number.
So what does it take?
Well, it is all about knowing your numbers.
There are a few key numbers that you need to take know in order to work this out:
1) Gross margin.
This is the percentage profit that you make in selling your product or service.
2) Expenses
What are your average overheads per month? How much does it cost you to run the business?
3) The amount of money you plan to take out of the business
How much money per month do you want to withdraw for yourself as a business owner? This may be as drawings, a salary or a dividend.
4) The amount of money required to keep the business growing
How much money do you need to make to keep moving your business forward? This may be for working capital, expansion or just to build up a buffer to allow for downturns or seasonality.
So how do you work out your number?
Firstly, we need to sum up the total dollars required:
Total profit required = Expenses + Amount of money you want to take out + Amount to Keep Business Growing
Next to work out your sales required:
Sales Target = Total Sum / Gross Margin %
This gives you the sales target you need to hit to meet all your business needs.
