10 Jun How to Calculate Your Revenue Target (And Why Most Owners Get It Wrong)
At some point, you decided on a revenue target for your business. Maybe it was a round figure you picked because it felt ambitious. Perhaps it was based on what a competitor seemed to be doing. Or maybe it just came from a gut feeling about what “successful” looks like for a business your size.
Here’s the problem: that number almost certainly doesn’t account for what it actually costs to pay you.
Not what you’re currently paying yourself. What you need. Housing, food, transportation, health insurance, a modest life that doesn’t feel like a constant sacrifice. That real number requires a different calculation entirely. And most owners have never done it.
The Direction of the Math Matters
Here’s how most business owners calculate their revenue goal:
They think about what they want to take home; say, $8,000 a month. Then, they add up what they think they spend to run the business. They land on a revenue number. Done.
The problem is what they leave out.
Taxes. Profit. The real cost of what it takes to deliver their service. These don’t get factored in. Or they get under-estimated. And so the business hits its revenue target and the owner still wonders where the money went.
This is one of the foundational insights behind Profit First: revenue minus expenses does not equal profit. That’s accounting math, and it’s backwards for actual humans running actual businesses. The formula most owners are using practically guarantees that owner pay is whatever’s left at the end of the month, which is often nothing.
So how do we fix it? We reverse the equation entirely.
What “Reverse Engineering” your Revenue Target Actually Means
Instead of starting with revenue and hoping profit and owner pay survive the journey, you start with the income you need, and work backward.
Here’s the short version of how it works:
Step 1: Start with your desired owner’s pay.
Not what you’re taking now. What you actually need. Housing. Food. Transportation. Health insurance. A modest life. That number. Most owners understate this, by the way. We’ve been so conditioned to treat ourselves as the last line item that we low-ball ourselves even in a hypothetical.
Step 2: Apply Profit First allocation percentages.
Profit First establishes benchmarks based on your revenue range: what percentage should go to Owner’s Pay, Taxes, Profit, and Operating Expenses. These aren’t arbitrary. They’re built from real data across thousands of businesses.
Here’s a simplified version of how those tiers work:
- Under $250K revenue: Owner’s Pay target is around 50% of revenue; Operating Expenses around 35%
- $250K–$500K: Owner’s Pay drops to around 35%; Operating Expenses around 40%
- $500K–$1M: Owner’s Pay around 20%; Operating Expenses around 60%
- $1M–$5M: Owner’s Pay around 10%; Operating Expenses around 65%
The percentages shift as the business scales because overhead grows and compensation structures change. What matters is that these benchmarks exist and are provable — which means you can calculate backward from them.
Step 3: Solve for revenue.
Once you know what your Owner’s Pay allocation percentage is at your revenue range, the math becomes straightforward. If your target take-home is $8,000/month and that represents 35% of revenue at your size, your monthly revenue target is about $22,800. Annually, that’s $273,600.
That’s the number. That’s what your business needs to hit. Not $200K because it “sounds reasonable.”
Step 4: Account for what sits between revenue and real revenue.
If your business has subcontractors, materials, or commissions — expenses that are directly tied to each sale — then your revenue number isn’t the same as your gross sales number. You may need to invoice $350K to net $273K in real revenue after those pass-through costs. The worksheet handles this automatically. Most owners skip this step and wonder why the math keeps not working.
Step 5: Build a sales plan from the number.
$273,600 annually is $22,800 monthly. At 4.3 weeks per month, that’s about $5,300 a week. If your average client engagement is $1,800, you need roughly 3 new clients per month. Now you have a target. Now you can build a calendar, a pipeline, a pricing strategy—around a real number instead of a guess.
Why “Whatever’s Left” Is Not a Compensation Strategy
I was working with a client a few years ago. Solid business. Good reputation. $680K in revenue. She took home $43,000 that year.
When we reverse-engineered her pay, we found her target should have been closer to $136,000. Roughly 20% of her revenue. The gap wasn’t because the business couldn’t support it. The gap was because she had no system. Owner pay was a leftover, not a line item.
When owner pay is a leftover, operating expenses expand to fill the space. Software subscriptions nobody’s using. Vendors who’ve quietly gotten expensive. Overhead that crept up over years of “it’s only a little more.” The business looks busy and feels productive. The owner feels broke.
This is not a cash flow problem. It’s a structure problem.
The good news: structure is fixable. You just need to know the number first.
The Mistake That’s Hiding in Your Pricing
Here’s something I see constantly, especially in service businesses: underpricing that’s invisible to the owner.
When you don’t know the real revenue number your business needs, you price on feel. You look at competitors. Charge what seems “reasonable.” You discount to close deals. And you tell yourself you’ll raise rates someday when things feel more stable.
But “someday” is a function of knowing the number. Without the number, there’s no clear signal that your pricing is off. You’re just busy and financially foggy.
Reverse engineering your pay makes underpricing visible. If your worksheet says you need $22,800 a month and your current pricing would require you to take on 18 clients to get there. You don’t have a sales problem, you have a pricing problem. And now you can fix it!
Figure Out Your Revenue Target in Less Than 20 Minutes
I built an interactive tool that walks you through every step I’ve described here, with the Profit First allocation tables built in, a materials and subcontractor adjustment toggle, and a daily/weekly/monthly sales breakdown so the number doesn’t just sit on a page.
At the end, you can download a PDF of your results. Print it. Put it next to your monitor. Share it with your bookkeeper. This is your number. You should know it by heart.
Access to the tool and your report normally costs $29, but right now it’s available for $19.
Twenty minutes. One exercise. The clearest financial picture your business has given you yet.
Get the Reverse Engineer Your Owner’s Pay Worksheet for $19 →
Angie Noll is the founder of Reconciled Solutions and a Certified Profit First Advisor (Designer Level). She works with service-based business owners to build financial systems that create real clarity, real profit, and real freedom.
