Leading Entrepreneurship

When starting, one of the most difficult numbers to calculate is how much sales need to be generated – or is it?

A target sales number should not be an impossible figure to determine if you know how much you’d like to make and how much overhead it will take to support your operations.  The formula is certainly simple:

Target Sales = (Overhead + Target Income) / Gross Profit Margin %

Not sure what your gross profit margin % should be?  Review my post on gross profit margin benchmarks for a solid estimate.

Not sure what your overhead should be?  Determine your ballpark payroll (not including yourself), rent and advertising costs - then multiply that number by 2 – and you will be close enough.

For example, if I was looking to start a computer software retail store and I believe my overhead will be around $320,000 and I am looking to make $80,000, the formula would look like this:

Target Sales = ($320,000 + $80,000) / 47% = ~$850,000

I can then compare against the industry average sales of ~$1.6 million to see if I’m in or out of line.  With this example, I appear to be within reason… assuming I did not severely underestimate my expenses and I can execute on an effective marketing plan.