A — Anchor: Your Target Profit and Loss
Step 3 of 7: A — Anchor | The Blizzard Breakthroughs CLARIFY Method™
Target Profit and Loss
The goal here is knowing exactly what KPIs need to be hit in order to succeed. A Target Profit and Loss statement (Income Statement) makes sure your budgets and KPIs line up to produce an acceptable Net Profit.
Flip the Equation: Profit Set First
Most businesses build their Profit and Loss statement as Sales − Expenses = Profit, which treats profit as whatever happens to be left over. Expenses will always expand to consume whatever revenue is available if you let them. Your Target Profit and Loss flips that: Sales − Profit = Expenses. Decide the Net Profit you require first, then build Admin, Marketing, and COGS around what's left. Profit stops being a hope and becomes a number you engineered on purpose.
Build Your Target Summary Profit and Loss
| Line Item | Target Number |
|---|---|
| Target Revenue | |
| COGS | |
| Gross Profit | |
| Admin | |
| Marketing | |
| Total Fixed Expenses (Overhead) | |
| Net Profit |
Steps
- Set a realistic revenue target.
- Decide your required Net Profit first — this is non-negotiable, not the last line you check.
- Determine the minimum marketing budget required to increase revenue. What amount of revenue do you want in the next 3 months? How much revenue will your company earn for the next 3 months based on the sales you already have? If you subtract the amount that you already will have from what you need to have in the future, you have the amount of sales from new customers that you need to achieve. In other words, if you receive recurring revenue from customers or if you have sales from existing customers that will be billed in the coming months, that is the number you need to subtract from the next 3 months' revenue target. Now you know the revenue that you need to get. For that revenue, what is the minimum number of customers you need to get? What is the maximum number of customers? Next, do you know how many of your sales result in a purchase, aka your sales close ratio? If not, double the number of customers to calculate the potential customers that you need to attract. That is effectively a 50% sales close ratio. Lastly, what is the minimum amount of money you need to spend on marketing to attract that many customers? What is the maximum amount? It's ok if you don't know, we can refine it later. Just fill in the min and max of what it might cost.
- Apply the Gross Margin you expect going forward.
- Use prior-period Admin and Marketing dollar amounts, adjusted for any recent changes, but only what fits after profit is secured.
- Add the additional marketing expense required to generate the new sales needed to hit your Target Revenue.
- Confirm the Net Profit matches the number you decided on in step 2 — not just whatever is left over.
Check the Downside: No-Growth Summary Profit and Loss
Before committing to the target, stress-test it against a flat scenario:
| Line Item | No-Growth Number |
|---|---|
| Status Quo Revenue | |
| COGS | |
| Gross Profit | |
| Admin | |
| Marketing | |
| Total Fixed Expenses (Overhead) | |
| Net Profit |
Steps
- Set revenue at last 12 months' actual level.
- Apply the Target Profit and Loss statement's Gross Margin, Admin, and Marketing expenses.
- Check that the Net Profit is still an acceptable number.
You'll walk away with:
A concrete Target Profit and Loss statement, built profit-set-first and stress-tested against a no-growth scenario.
← Back to Curriculum | ← Previous | Next: R — Rev Up: Develop Scorecard →