Reviewed by Julian Vance, CPA, Financial Planning Specialist
This Total Revenue Target Calculator helps determine the necessary unit price (P) or sales volume (Q) required to achieve a total revenue target that covers fixed costs and desired profit.
The **Total Revenue Target Calculator** is essential for validating whether your current pricing, costs, and sales volume targets are capable of generating the revenue needed to sustain operations and hit profitability goals. By manipulating the CVP equation, it helps pinpoint the necessary revenue components.
Total Revenue Target Calculator
Detailed Calculation Steps
Total Revenue Target Formula
The Total Revenue Target (R) is calculated by multiplying the required Sales Volume (Q) by the Selling Price (P). This R must satisfy the CVP equation: $R = (V \times Q) + F$.
Formula to Solve for Total Required Revenue (R = P × Q)
R = (F / (P – V)) × P
Alternatively, the key CVP equation is:
F = Q × (P – V)
Formula to Solve for Sales Volume (Q)
Q = F / (P – V)
Formula to Solve for Selling Price (P)
P = V + (F / Q)
Formula to Solve for Variable Cost (V)
V = P – (F / Q)
Formula Source: Investopedia – CVP Analysis
Variables Explained
The calculation analyzes the relationship between these four CVP variables to determine the necessary revenue targets:
- **F (Required Funds):** Total Fixed Costs plus the Target Profit amount that must be covered by the total Contribution Margin.
- **P (Selling Price Per Unit):** The unit price charged to the customer, directly impacting total revenue.
- **V (Variable Cost Per Unit):** The cost directly associated with producing one unit.
- **Q (Sales Volume Target):** The projected or calculated number of units sold to achieve the revenue target.
Related Calculators
Explore other financial calculators related to revenue, volume, and profitability:
- Target Profit Revenue Calculator
- Required Break-Even Sales Calculator
- Sales Price Optimization Calculator
- Gross Margin Revenue Calculator
What is the Total Revenue Target Calculator?
The Total Revenue Target Calculator utilizes the principles of Cost-Volume-Profit (CVP) analysis to define the total sales revenue a company must generate in a period to cover its fixed costs and achieve a predetermined profit goal. This target revenue is the product of the Selling Price (P) and the calculated Sales Volume (Q).
This tool is crucial for financial planning, budgeting, and setting sales quotas. It allows managers to immediately see the financial impact of changing variables like unit price or variable cost on the necessary sales volume and the final total revenue required to meet funding goals (F).
How to Calculate Required Sales Volume (Example)
Here is a step-by-step example of how the calculation works when solving for the Sales Volume Target (Q), which is necessary to derive the Total Revenue Target:
- **Define Required Funds (F):** Total Fixed Costs and Target Profit (F) is $200,000.
- **Input Price and Variable Cost (P & V):** Selling Price (P) is $120, and Variable Cost (V) is $40.
- **Calculate Contribution Margin:** CM = P – V = $120 – $40 = $80 per unit.
- **Solve for Sales Volume (Q):** Q = F / CM = $200,000 / $80.
- **Find the Sales Volume Target (Q):** Q = 2,500 units.
- **Calculate Total Revenue Target (R):** R = Q × P = 2,500 × $120 = $300,000. The company needs $300,000 in total revenue to meet its financial goals.
Frequently Asked Questions (FAQ)
How does this relate to the Break-Even Point?
The Break-Even Point is a specific case of the Total Revenue Target where the Target Profit portion of ‘F’ is set to zero. The result is the minimum revenue required just to cover fixed costs.
What is the primary driver of the Total Revenue Target?
The primary driver is the Contribution Margin Ratio, which is (P – V) / P. A higher ratio means less revenue is required to cover the same fixed costs and target profit because each sales dollar contributes more to the bottom line.
If I increase my Fixed Costs (F), how does that affect Total Revenue?
Increasing the Fixed Costs portion of F directly increases the required Total Revenue. Because the Contribution Margin (P – V) remains constant, a higher sales volume (Q) is required, which in turn leads to a higher Total Revenue (R = P × Q).
Why does the calculator round up the sales volume (Q)?
The sales volume (Q) is always rounded up to the next whole unit (using fmtNum()). If you need 2,499.1 units to reach the target revenue, you must sell 2,500 units to fully cover the Required Funds (F).