How to use the revenue scenario profit simulator
This tool lines up several revenue levels side by side so you can see where the business makes money and where it stops. Enter a downside, base and upside case at once and the table breaks out variable cost, contribution, operating profit and margin for each.
Two assumptions drive the math. Fixed costs stay the same whatever revenue does, and variable costs move in direct proportion to revenue. So each scenario's variable cost is revenue multiplied by the variable cost rate, and subtracting it from revenue gives contribution, from which fixed costs are deducted to reach operating profit. Things that change the assumptions themselves, such as a headcount step you have to take past a certain volume or a cost rate that falls with bulk discounts, are not modelled here.
The contribution margin rate is 100% minus the variable cost rate, and monthly fixed costs divided by that rate gives break-even revenue. Any scenario showing a negative operating profit is one where revenue does not cover fixed costs, so compare it against break-even revenue when deciding where to set the target.
Frequently asked questions
Take the last few months of results, keep only the costs that moved with revenue, and divide by revenue. For a manufacturer that means materials and subcontracting; for an online seller it is platform fees, shipping and card processing.
They do once you cross a threshold that forces more staff or more space. When that happens, run the calculation twice with different fixed costs and put only the scenarios belonging to each range into their own run.