It may not be an exact science for figuring out how well your business is doing, but business turnover is one of those markers you can use to get a good idea. So what is turnover? How is turnover calculated? While business turnover is a useful measure of success, it is often confused with profit. So, what is the turnover, how is it calculated? This article explains in simple terms what business turnover is and guides you in the calculation.
What is Turnover?
Turnover is the total sales a business makes in a given period. It is sometimes referred to as ‘gross income’ or ‘income’. This is different from profit, which is a measure of earnings. This is an important measure of your business’s performance. Knowing your turnover figure is useful throughout the life of your business, from planning and securing investment, to measuring performance and valuing your company if you plan to sell.
There are also a few other definitions of potential turnover that are not directly related to your finances. For example, “turnover” can also mean the number of employees leaving a business within a given period of time, and is sometimes known as “lost”. If you are also offering loans to customers or clients, you can also measure the ‘turnover of accounts receivable’ – the time it takes your customers to pay.
What is the Difference with Profit?
In business, turnover is not the same as profit, although people often confuse the two. Turnover is your total operating income over a given period of time – in other words, net sales figure, profit refers to your earnings after subtracting expenses. There are two different ways to profit.
‘Gross profit’ means sales minus the cost of goods or services you sell – this is also called ‘ sales margin ‘. ‘Net profit’ is the figure left after deducting all expenses (such as administrative and taxes) in a given period.
How is Business Turnover Calculated?
Calculating your turnover is relatively simple. If you keep accurate records (which you should do for tax purposes), it should be pretty quick to put together your total sales. It is worth noting that the turnover is measured over a specific period, usually a tax year. Subtract the cost of your sales from your turnover to calculate gross profit. Calculate net profit, take your gross profit and deduct all other expenses – without forgetting your tax obligations.
The monthly turnover calculation formula is found by dividing the number of turnovers in a month by the average number of employees on the payroll. Multiply the result by 100 and the resulting figure is the monthly rate. Sample:
Number of breakups per month
——————————————— —– ——— X 100
Average number of employees on payroll during the month
The number of breakups in the month includes both voluntary and involuntary terminations. Do not include dismissed employees.
There are times when employers want to calculate the annual rate. This can be done by adding together each of the monthly rates. January + February + March + April ……+ December = Annual Turnover rate.
Why is Turnover Important for Businesses?
It’s important for business owners to understand their turnover so they can essentially figure out what they need to bring in to reach their target profits. If your gross profit is low compared to your turnover, you may want to look for ways to reduce the cost of your sales, for example by renegotiating contracts with suppliers.
The 4 types of turnover most preferred by businesses and companies are as follows:
Annual: This system, which allows companies or companies to calculate how much they grow annually, is generally preferred by large-scale companies.
Monthly: It is frequently preferred by businesses where their employees’ salaries are paid monthly.
Weekly: It is preferred by businesses that have a system where employees’ salaries are paid on a weekly basis.
Daily: This is the type that is generally preferred to be calculated by small businesses and businesses that pay daily wages.
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