Free tool
What has to change to hit your number?
Most profit tools start with a change and tell you the result. This starts with the result. Name the profit you want, the margin you want, or the facility you want to be able to carry, and it works back to what each lever would have to do, and to the much smaller move on all four that gets there instead.
What has to change
Worked from figures entered by the reader. Indicative only, and not advice of any kind.
This is a year of ordinary work, not a rescue.
Moving all four earnings levers together gets there without any single one of them doing anything dramatic. That is almost always how it actually happens.
One move that does it: 2.6% on price, volume, cost of sales and overheads at the same time.
Making now
$444,000
10.6% of revenue.
Goal
$700,000
Operating profit the goal comes to.
Short by
256,000 dollars
What has to be found.
| Lever | On its own, it would take | Size of the ask |
|---|---|---|
| Price | Put prices up 6.1% | A stretch |
| Volume | Sell 14.5% more | Outsized |
| Cost of sales | Take 10.5% out of them | Outsized |
| Overheads | Take 19.4% out of them | Outsized |
| Debtor days | No number of days gets you there. Working capital releases cash once, and a goal stated in profit, in margin or in what a lender will lend is a goal about earnings. | Wrong lever |
| Stock days | No number of days gets you there. Working capital releases cash once, and a goal stated in profit, in margin or in what a lender will lend is a goal about earnings. | Wrong lever |
| Creditor days | No number of days gets you there. Working capital releases cash once, and a goal stated in profit, in margin or in what a lender will lend is a goal about earnings. | Wrong lever |
Each row assumes that lever moves and nothing else does. Small, real work, a stretch and outsized are our own rough scale for how big an ask something is, not a benchmark.
One large move, or four small ones
6.1%
on price alone, with nothing else moving.
2.6%
on all four together. Same destination, and nobody has to notice.
The gap between those two figures is the entire argument for working several levers at once rather than betting the year on one.
- Small, real, big and outsized describe how large a move is being asked for. They are our own rough scale for talking about it, not a benchmark and not anybody's published standard. A two per cent price rise is easy in one industry and unthinkable in another.
- Four small moves beat one large one, and the gap is usually bigger than people expect. 6.1% on price alone, or 2.6% on all four at once. The second is the same destination for a fraction of the disruption, and it is how it actually gets done.
- Price asks for less than volume, always, and the gap is your gross margin: 42.0 cents in the dollar means volume has to work about 2.4 times as hard. Selling more brings in the goods it took to make it. Charging more does not.
The method
Five lines, solved separately because they do not behave the same.
| Line | How it is worked out | Why it matters |
|---|---|---|
| The goal, in dollars | A profit figure is taken as it is. A margin is multiplied by revenue. A facility is run back through the serviceability sum: cover, assessment rate and term give the earnings that would carry it. | All three questions are the same question underneath. Reducing them to one figure means the levers are solved once rather than three times. |
| Price | The shortfall divided by revenue. Every dollar of a price rise reaches the bottom line, because nothing about producing the goods changed. | Always the smallest number on the page, and the one most owners rule out first. |
| Volume | The shortfall divided by revenue and again by the gross margin, because only the margin on the extra trade falls through. | The gap between this row and the price row is your gross margin, exactly. At 40 cents in the dollar, volume works two and a half times as hard. |
| Cost of sales and overheads | The shortfall as a share of each cost base. Where it comes to more than 100 per cent the answer is that the line cannot carry the goal alone, said in words rather than shown as a number. | A cost cannot be cut by more than it is. A calculator returning 140 per cent there is not giving an answer. |
| The blend | The single percentage that reaches the goal when it is applied to all four earnings levers at once. | Always far smaller than any single lever, and the way it is actually done. This is the number worth writing down. |
The goal, in dollars
- How it is worked out
- A profit figure is taken as it is. A margin is multiplied by revenue. A facility is run back through the serviceability sum: cover, assessment rate and term give the earnings that would carry it.
- Why it matters
- All three questions are the same question underneath. Reducing them to one figure means the levers are solved once rather than three times.
Price
- How it is worked out
- The shortfall divided by revenue. Every dollar of a price rise reaches the bottom line, because nothing about producing the goods changed.
- Why it matters
- Always the smallest number on the page, and the one most owners rule out first.
Volume
- How it is worked out
- The shortfall divided by revenue and again by the gross margin, because only the margin on the extra trade falls through.
- Why it matters
- The gap between this row and the price row is your gross margin, exactly. At 40 cents in the dollar, volume works two and a half times as hard.
Cost of sales and overheads
- How it is worked out
- The shortfall as a share of each cost base. Where it comes to more than 100 per cent the answer is that the line cannot carry the goal alone, said in words rather than shown as a number.
- Why it matters
- A cost cannot be cut by more than it is. A calculator returning 140 per cent there is not giving an answer.
The blend
- How it is worked out
- The single percentage that reaches the goal when it is applied to all four earnings levers at once.
- Why it matters
- Always far smaller than any single lever, and the way it is actually done. This is the number worth writing down.
A worked example
“I need to be able to borrow $750,000.”
A business turning over $4,200,000 at a 42 per cent gross margin, carrying $1,320,000 of overheads. It wants a facility it cannot currently service. Rather than asking a lender and finding out in six weeks, the sum runs the other way: at 1.5 times cover, 9 per cent and 7 years, a facility that size needs $217,203 of extra annual earnings behind it.
This is a year of ordinary work, not a rescue.
Moving all four earnings levers together gets there without any single one of them doing anything dramatic. That is almost always how it actually happens.
One move that does it: 2.2% on price, volume, cost of sales and overheads at the same time.
Making now
$444,000
10.6% of revenue.
Needs to make
$661,203
To carry the facility at those settings.
Short by
$217,203
What has to be found.
| Lever | On its own, it would take | Size of the ask |
|---|---|---|
| Price | Put prices up 5.2% | A stretch |
| Volume | Sell 12.3% more | Outsized |
| Cost of sales | Take 8.9% out of them | A stretch |
| Overheads | Take 16.5% out of them | Outsized |
| Debtor days | No number of days gets you there. Working capital releases cash once, and a goal stated in profit, in margin or in what a lender will lend is a goal about earnings. | Wrong lever |
| Stock days | No number of days gets you there. Working capital releases cash once, and a goal stated in profit, in margin or in what a lender will lend is a goal about earnings. | Wrong lever |
| Creditor days | No number of days gets you there. Working capital releases cash once, and a goal stated in profit, in margin or in what a lender will lend is a goal about earnings. | Wrong lever |
Each row assumes that lever moves and nothing else does. Small, real work, a stretch and outsized are our own rough scale for how big an ask something is, not a benchmark.
One large move, or four small ones
5.2%
on price alone, with nothing else moving.
2.2%
on all four together. Same destination, and nobody has to notice.
The gap between those two figures is the entire argument for working several levers at once rather than betting the year on one.
The three working capital rows return no answer at all, and that is the most useful thing on the table. Collecting faster would put real cash in the account, and it would move this facility by nothing, because a one-off release is not earnings. Anyone chasing debtor days to get a bigger limit is solving a different problem.
What actually gets done is the last line: 2.2% on price, volume, cost of sales and overheads at the same time. Nobody in the business would notice any one of those moves. The facility would.
Which tool you want
This one starts at the answer. The other starts at the change.
They run the same arithmetic in opposite directions, and the tests hold them to it: take any answer from this page, put it into the levers calculator, and the profit that comes out is the profit this page asked for. If it ever stopped being true, one of the two would be lying to somebody.
Use the levers calculator when you want to see what each move is worth before you commit to a target. Use this one when the target is already fixed, by a lender, a partner, or the number you need to take home.
The levers calculatorWhat this does not cover
- Any assurance that a lender will approve a facility. The borrowing goal shows the earnings a credit team would be looking for, and nothing more
- Whether your market will wear a price rise, which is the question the arithmetic cannot answer and the one that decides it
- Working capital, which releases cash once and reaches no goal stated in earnings
- Tax, in any form. Every figure here is operating profit, before interest and before tax
- Where in the business the improvement comes from, which is the work rather than the sum
Not sure what number you should be aiming at?
The real profit calculator works out what is left once a market wage for your own job is in the accounts, and where that margin sits. It is the page that gives you the target this one works back from.
Reading behind the number
Want the finance arranged as well?
This site does the analysis and the documents, and does not arrange credit. The broking is done by The Lending Lab, a separate business run by the same person. Send a few details and Nick handles it himself.
Common questions
It is the same arithmetic pointed the other way. The levers calculator asks what happens if you move something. This one asks what has to move to get somewhere. If you already know the number you need, whether that is a profit figure, a margin or a facility you want to be able to carry, start here. If you want to see what each lever is worth before you set a target, start there.
Because it is, and the gap is exactly your gross margin. A price rise costs nothing to produce, so every dollar of it reaches the bottom line. Extra volume arrives carrying the cost of the goods, so only the margin does. At a 40 per cent gross margin, volume has to work two and a half times as hard as price for the same result. That ratio is not an opinion, it is division.
Because collecting a week faster releases cash once and then stops. It is not earnings, it does not repeat next year, and no lender lends against it. A goal stated in profit, in margin or in what you want to borrow is a goal about earnings, so days cannot reach it at any value. That is worth knowing before anyone reorganises the business around debtor days expecting a bigger facility.
It is the one percentage that reaches the goal if you apply it to price, volume, cost of sales and overheads all at once. It is always far smaller than any single lever on its own, because four things each moving a little add up faster than one thing moving a lot. It is also how the work usually gets done, since almost nobody puts prices up eight per cent in one go.
Us. They are a rough scale for describing how large a move is being asked for, not a benchmark and not anyone's published standard. A two per cent price rise is nothing in one industry and unthinkable in another. Treat the words as a prompt to think about your own market, and the percentages as the actual answer.
It runs the serviceability sum backwards. A lender sizes a facility from earnings, a cover requirement, an assessment rate and a term, so naming the facility and holding the other three fixed gives you the earnings it would take. All three assumptions stay on the screen because the same facility needs very different earnings across ordinary settings. It is a guide to what a credit team would be looking for, not an indication that anyone will lend it.
It means no single lever on the current model gets you there, which is genuinely useful early rather than late. Goals that far out usually get reached by changing what the business sells, what it charges for separately, or which customers it takes on, rather than by running the same model harder. That is a conversation rather than a calculator.
General information only. Indicative, not a credit assessment, and not an offer of finance. Lending decisions rest with the lender and depend on your circumstances and their criteria. The borrowing goal shows the earnings a facility of that size would need at the settings on screen. It is not an indication that any lender will provide it. Small, real work, a stretch and outsized are our own scale for the size of a change, not a benchmark.