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Definition: Profit Based Sales Target
Profit based sales targets are those targets set by managers, where the sales team have an idea of the profit that they require from the product/service, and the set sales targets in such a way as to attain these profits.
This method of sales targeting is when a manager knows the level of dollar profit that is required, beforehand. For calculating the corresponding the required sales level, the data regarding variable costs, fixed costs, contribution margin etc. should be known. Based on this data, the target revenue and the target volume sales can be calculated. The target volume sales is the number of units of the product that must be sold to achieve the required profit, and the target revenue is the corresponding dollar revenue from these sales.
Achieving profits is what keeps a company going forward, and by this method, managers can estimate not only the sales required to cover fixed costs, but also the unit sales required to attain the required profit.
For example, if the senior management of a company informs the sales manager that the company requires Rs.5 Crores in profits that year. The sales manager of the company can calculate the number of units that must be sold in order to achieve these profit levels, and set the sales targets accordingly.
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