What is a 'Target Return'
A target return is a pricing model that prices a business based on what an investor would want to make from any capital invested in the company. Target return is calculated as the money invested in a venture plus the profit that the investor wants to see in return, adjusted for the time value of money. As a return on investment method, target return pricing requires an investor to work backwards to reach a current price.
BREAKING DOWN 'Target Return'
One of the major difficulties in using this pricing method is that an investor must pick both a return that can be reasonably attained, as well as a time period in which the target return can be reached. Picking a high return and a short time period means that the venture has to be much more profitable in the shortrun than if the investor expected a lower return over the same period, or the same return over a longer period.
Ways Target Return Can Be Applied
Target return can also be used to project what price a company should set on its product sales to generate a desired profit. For instance, if a flashlight company might set a target return of 15 percent on $10 million that was invested into the development of a new flashlight. The manufacturing cost per unit is $12 and the company expects to sell at least 70,000 units within the specified timeframe. That means each new flashlight would need to be priced at $33.43 and up to deliver the return that was sought.
This model presumes that the company will be able to achieve the projected sales volume in order to reach the target return. If actual sales come up short, the pricing would have to be adjusted in order to achieve the target.
The target return model differs somewhat from a costplus pricing strategy where the price markup is based on other criteria. The cost of producing the product is the main factor, with an additional profit margin created by setting the price higher. Time and expected volume of sales do not play a part in this price model. Instead, the company determines how much it wants to earn from the product it sells, without consideration of any investments into the company or the development of the product. Another model, valuebased pricing, works from the opposite direction. This starts with the value the company assigns to the product and then works to adjust the costs of production achieve profitability.

Total Return
Total return is a performance measure that reflects the actual ... 
Annual Return
Annual return is the compound average rate of return for a stock, ... 
Mean Return
1. In securities analysis, it is the expected value, or mean, ... 
Annualized Total Return
Annualized total return gives the yearly return of a fund calculated ... 
Target Market
A target market is the market a company wants to sell its products ... 
Abnormal Return
A term used to describe the returns generated by a given security ...

Personal Finance
How Target Can Expand Internationally
Target needs to get back onto the international scene in order to take on its largest competitors. There's only one way to do it, and it involves the Internet. 
Investing
How to calculate your investment return
How much are your investments actually returning? The method of calculation can make a significant difference in your true rate of return. 
Investing
What Returns Can You Expect in the Stock Market?
Looking at the historical returns of the stock market helps you understand current stock returns. 
Investing
How to calculate required rate of return
The required rate of return is used by investors and corporatefinance professionals to evaluate investments. In this article, we explore the various ways it can be calculated and put to use. 
Investing
Returns and Financial Planning Projections
Return expectations continue to be a necessary part of any investment strategy discussion. 
Retirement
Using Compounding to Boost Retirement Savings
Allowing growth on your investments to compound over time gives you immense returns when saving for retirement. 
Investing
A Market Prediction From a Hesitant Predictor
It is much better to focus on investment planning than market predictions. 
Managing Wealth
Private Equity's Returns Are Tempered By Its Risks (BX, KKR)
Private equity firms adopt approaches to quickly hike up earnings and boost returns, but these investments come with big risks too. 
Investing
Overcoming Compounding's Dark Side
Understanding how money is made and lost over time can help you improve your returns. 
Investing
How To Create Capital Protected Investment Using Options? (MSFT)
Does "CapitalProtection" guarantee in an investment product sound attractive? Wait! Here's how you can create a better one for yourself, at lowcost!

What is a good annual return for a mutual fund?
Before investing in mutual funds, it's important to understand individual goals for the investment over a specified time ... Read Answer >> 
Required Rate of Return and Gordon Growth Model
Find out how a change in the required rate of return adjusts the price an investor is willing to pay for a stock. Learn about ... Read Answer >> 
What's the difference between absolute and relative return?
Knowing whether a fund manager or broker is doing a good job can be a challenge for some investors. It's difficult to define ... Read Answer >> 
Calculate your portfolio's investment returns
Learn the basic principles underlying the data and calculations used to perform personal rates of return on investment portfolios. Read Answer >>