Profit First Allocation Calculator
Determine your cash distributions based on the Mike Michalowicz system.
Percentages must total 100% to reflect full allocation.
Real Revenue:
$0.00
Profit Account:
$0.00
Owner's Pay:
$0.00
Tax Reserve:
$0.00
Operating Expenses (OpEx):
$0.00
What is the Profit First Method?
The Profit First method, popularized by Mike Michalowicz, flips the traditional accounting formula. Instead of Sales – Expenses = Profit, the system uses Sales – Profit = Expenses. By taking your profit first and allocating it to a separate account, you force your business to operate more efficiently with the remaining funds.
How to Use This Calculator
To use the Profit First Calculator, follow these steps to find your Real Revenue and Target Allocation Percentages (TAPs):
- Gross Revenue: Enter the total amount of money your business collected in the period (e.g., monthly or bi-weekly).
- Materials & Subs: Subtract payments made to external subcontractors or direct costs of materials. This leaves you with "Real Revenue."
- Set Your Percentages: Standard TAPs for a business doing under $250k in Real Revenue are often 5% Profit, 50% Owner's Comp, 15% Tax, and 30% OpEx.
- Distribute: Use the calculated dollar amounts to move money into your five primary bank accounts.
Real-World Example
Imagine a freelance graphic designer who earns $10,000 in a month. They spent $1,000 on a specialized illustrator (Subcontractor). Their Real Revenue is $9,000. Using standard TAPs:
- Profit (5%): $450 – Moved to a holding account for quarterly rewards.
- Owner's Comp (50%): $4,500 – The designer's personal salary.
- Tax (15%): $1,350 – Saved for the IRS.
- OpEx (30%): $2,700 – The budget for software, rent, and marketing.
Why Real Revenue Matters
Real Revenue is the true indicator of your business's health. If you have $1 million in Gross Revenue but spend $800,000 on materials, your business is actually an $200,000 business. Allocating based on Gross Revenue often leads to over-spending on operating expenses because the numbers appear larger than they are.