Profit First Calculator

A Profit First calculator takes your real revenue, total revenue minus what you pay out to materials and subcontractors, and splits it across four accounts using the target allocation percentages published for your revenue band: Profit, Owner's Pay, Tax and Operating Expenses.

What the Profit First method is

Profit First, created by Mike Michalowicz, flips the usual formula of Sales minus Expenses equals Profit around to Sales minus Profit equals Expenses. Instead of waiting to see what is left over at the end of the month, a business sets aside profit and tax the moment revenue arrives, by physically moving percentages of every deposit into separate bank accounts. What is left in the operating expenses account is the only money the business is allowed to spend running itself, which forces spending decisions to match what the business can actually afford rather than what is convenient.

What counts as real revenue

Real revenue is total revenue minus the cost of materials and subcontractors, since that money passes through the business without ever really belonging to it. An agency billing 480,000 dollars a year that pays 80,000 dollars out to subcontractors has a real revenue of 400,000 dollars, and it is that smaller number the target percentages apply to. Skipping this step and applying percentages to total revenue instead tends to overstate how much a business can actually allocate to profit and pay.

Target allocation percentages by revenue band

The percentages shift as real revenue grows, because a business earning under 250,000 dollars a year needs a very different split than one earning several million. Widely published starting points put businesses under 250,000 dollars at roughly 5% Profit, 50% Owner's Pay, 15% Tax and 30% Operating Expenses. As real revenue climbs through the 250,000 to 500,000, 500,000 to 1,000,000, and 1,000,000 to 5,000,000 dollar bands, the Profit percentage rises, Owner's Pay drops as a percentage even though the dollar amount usually still grows, and Operating Expenses claims a larger share to cover the added complexity of a bigger team and operation.

How to actually use the percentages

These targets are meant to be a direction, not a deadline. Most Profit First guidance recommends comparing your current allocation percentages against the targets for your band, then closing the gap by just a percentage point or two at a time, often reviewed quarterly. Jumping straight to the target split can leave operating expenses underfunded overnight, which defeats the purpose of a system meant to build financial discipline gradually rather than create a cash crunch.