What is Turnover in Business & its Impact

December 27, 2023
what is turnover in business

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Running a business involves many aspects. From marketing to logistics, you need to take care of everything if you want to have a successful business. One such aspect is business turnover. Now, you may be wondering what is turnover in business, what is annual turnover business, how to calculate business turnover, how is it relevant to you, etc

Worry you not! In this article, we will explore in detail what is turnover in business, its features and types, how it impacts businesses, and much more. We will also compare turnover vs. profit. Stay tuned and read the article through till the end to benefit from it!

What is Business Turnover?

Business turnover is the total revenue that a business can generate in a given period. It is the money that it earns through the sale of its goods and services in a specific amount of time. This amount of time is usually a fiscal year.

Looking at the business turnover of a company, you can tell how well it is doing financially. It also helps us evaluate the profitability of the business and its growth potential. Several financial ratios like gross profit margin and return on investment etc. are also calculated through business turnovers. These ratios help investors in the business to determine whether lending money to a specific business is worth it or not.

Different types of turnovers are used to measure the profitability of a business: 

Gross Turnover

This is the entire revenue a business has earned. It is inclusive of any expenses that are later reduced. It includes every single penny a business makes from its products and services. 

Net Turnover

This is the total revenue a business earns after any discounts and allowances have been deducted. This is the actual amount of money that the business has generated. 

Operating Turnover

This is the money that the business earns through its primary operations. This involves the revenue that has been made through selling products and services only. 

Financial Turnover

This is the money a business earns from its financial activities. These activities involve investing and getting interest on money in bank accounts.
These are just a few types of turnovers. Now, let us look at what is turnover in business with examples.
For instance, a business has generated a turnover of $500,000 in a fiscal year. This means that it has generated total revenue of $500,000 from all its business activities in that year.

Difference Between Turnover and Profit

Turnover and profit seem to be very similar concepts but they are different from each other in many ways. The difference between turnover vs profit is a crucial one. They are both important metrics for a business. Therefore, it is important to know how they differ from each other.
What is turnover in business? Turnover is the total amount of money that a business earns through its sales. It represents the total or gross income of the company before any expenses have been taken away from it.

Profit, however, is all the money that is left after the expenses have been subtracted from the turnover. It is the net income of the business after taxes and other financial obligations have been paid off.
To summarize, turnover and profit are different. Turnover is the total amount of money that a business makes. The business is left with profit after all the expenses have been deducted.

Turnover does not consider the costs of running a business while profit does. As a result, a business can have a high turnover but low profit if the running costs of the business are high. Conversely, it can also have low turnover but high profits if the cost of running the business is low.

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How to Calculate Turnover

After learning about turnover in business and gross turnover in detail, you may now be wondering how to calculate turnover or how to calculate annual turnover for your business. It is quite easy to do so!
All you need to do is multiply your total sales revenue by the number of goods or services. The formula for it looks something like this:
Turnover = total sales revenue x number of goods/services provided
So, if a company has a total sales revenue of $100,000 and it sold 1,000 units of its products, its turnover should be:
Turnover: $100,000 x 1,000 = $100,000,000

Also read – Operating Profit: How to Calculate Operating Profit and Use it to Make Informed Business Decisions

Examples of Turnover in Business

There are many examples of how turnovers can manifest in business: 

Sales Turnover

This is the revenue generated from the sale of goods/services in a period.  

Employee Turnover

The number of employees who leave a company in a specific period. 

Inventory Turnover

The number of times a company sells out and replaces its inventory in a given time frame.

Asset Turnover

This measures how well a company is using its assets to earn revenue.  

Payables Turnover

This tells how quickly a company is paying its suppliers

Impact of Turnover on Business

Turnover can have two types of impacts on the business- positive and negative.
Viewed from a positive lens, turnover can indicate the growth of a company. When turnover increases, it means that a company is selling more of its products or services. This leads to increased revenue and profits. A high turnover rate also means that many customers return to the company for more of their products. 

On the other hand, a high turnover rate can also be indicative of issues within a business. For example, if there is a high employee turnover rate in a company, it means that more employees leave it frequently. This can indicate that employees have low motivation and do not receive enough support. High turnover rates in businesses can be costly. According to a study conducted by the Center for American Progress, the cost of replacing an employee ranges from 16% to 213% of the employee’s annual salary, depending on their role in the company.

All in all, the impact that turnover has on a business depends on the situation. A positive turnover can be an indicator of success. An institution still needs to monitor its turnovers and troubleshoot any problems.

Assessing the Significance of Turnover in Business Operations

You may now have a clearer picture of what business turnover is, how it works, and how to calculate it. It is an important part of business metrics. to evaluate the position a business is in. 
It is important to be thorough with what turnover is to use it in your favor to make your business flourish.

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Frequently Asked Questions (FAQs)  

Why is it important to understand turnover in business? 

Understanding what is turnover in business is important for its financial management. It helps to understand the business’s revenue and expenses.
By understanding what is turnover in business, we can also help retain employees in a business and boost productivity. It can provide insights into how various products and services of the business are performing.
By comparing your turnover with that of others, you can do an apt competition analysis and see what you need to do to improve.

What are the different types of turnover? 

The different types of turnover include gross turnover, net turnover, operating turnover, and financial turnover among others.

What are the causes of turnover in a business? 

Employee turnover can be caused by inadequate compensation provided to the employees. Low morale, poor management, and toxic company culture are also reasons for employee turnover

How can the turnover rate be calculated? 

After understanding what is turnover in business, it is important to know how to calculate it. Turnover can be simply calculated by multiplying the revenue by several units sold. Its formula is Turnover = revenue through sales x number of units sold.

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