What is Turnover?
Turnover is a great indicator of business or sales performance, in fact it’s probably the most simple business metric there is.
Turnover is not, however, an indicator of the health of your business though – read on to find out why not…
What is the difference between Turnover and all the other terms we hear?
We are often asked “What is the difference between turnover, income, revenue and sales?”
To be honest all the terms are reasonably interchangeable and you may also hear ones like total sales, gross income as well. Turnover is simply the term which is used most often in the UK to indicate top line sales.
Does Turnover have any other meanings?
But be careful, because turnover has different meanings in different countries and for different people too – In the UK most accountants and business people do tend to use the term Turnover to relate to their top line or total sales income or revenue.
But some individuals may think of staff turnover when they hear the word – that is the rate at which employees leave a business, also known as ‘churn’.
In this instance a high turnover is clearly not a good thing!
Is Turnover a good indicator of business performance?
One might think that if the turnover of a business is growing year on year, that dictates that the business is getting bigger and doing better each year too.
This is however not necessarily the case.
In my (too) many years in business, I have seen very successful sales people effectively sell their way out of business, usually by either discounting too much and not keeping a firm enough grip on their margin or profit (more on this in another article).
Or, even worse in my opinion, concentrating so much on the selling and servicing, getting the margins right so they are actually making a profit, but not putting the effort in to make sure those invoices ever get paid!
So they effectively act as a bank for their clients and go out of business because they run out of cash!
For these reasons, while sales figures and targets are important, they should never be the only measure of success for your business.
Knowing and understanding your turnover, as well as the other numbers in your business, allows you to set appropriate sales targets to generate the amount of profit you ultimately require to run a successful and growing business.
Why is Turnover Important?
You can drill this down further then by setting turnover targets by category, by target market, by product type or by sales person.
You can break annual performance turnover targets down to quarterly, monthly, weekly, and even daily sales targets.
You can set a turnover target to achieve your breakeven (more on this is the article on Understanding your business breakeven), and even monitor at what time in the day each day you achieve your breakeven…
What fun to set targets to achieve your daily breakeven by 10am, so you know that every single sale thereafter is pure profit!
Turnover goals and targets should be clearly visible and shared with every member of the team, so they are all playing their part in helping your business stay healthy and grow, providing them with secure jobs and the chance to grow themselves.
If you would like to understand more about turnover, breakeven, profit and cash, or other indicators of your business performance, please do drop us a line or give us a call.
Or check out our other resources and topics on our YouTube Channel