Turnover: Definition, calculation and purpose

07 July 2021

Generally used to evaluate a company, monitor sales performance, or determine a company's market share in a given sector, turnover is more than a simple performance indicator. Turnover is what we are going to make you discover.  





Turnover: What is it?  




It is on almost everyone's lips in the business world: the turnover, which is nothing more than the sum of sales of goods made or invoiced on a service by a company.  


You should note that the definition of turnover can vary according to the legal form of the company. 

In the case of a group, for example, instead of a simple turnover, we will rather talk about consolidated turnover, including all the sales and goods or services invoiced during a fiscal year by all the group's subsidiaries. 





Turnover: excluding taxes or including all charges? 



We must distinguish two types of turnover. First, there is the turnover excluding taxes. In this case, the turnover includes all charges, including the Value Added Tax (VAT). We also talk of projected turnover in the case of future income projections.  





Turnover: How to calculate it?   




You can calculate your turnover for any period, i.e., day, week, month, semester, quarter, or year.  


And you don't need a super calculator to do it. The following formula: Turnover = sales price * quantities sold.  


The formula takes into account the sum of all invoices for sales of goods and services, as well as credit notes, provided that all these items issued during an accounting period are in tax-free mode. 



Turnover: Indicator of the company's activity 



As the principal barometer of a given company's performance, sales are a good indicator of the company's activity.  


Some of its components, such as the turnover (amount automatically calculated according to the sales and payment terms indicated), the gross margin (difference, excluding taxes, between the sales price and the cost of goods or services) or the turnover per employee, are real mines of information. Once this information is studied in detail, it can inform, with extreme precision, the company's state of health.  






Knowing your turnover to better position yourself in your sector 




In addition to measuring a company's performance, this indicator also makes it possible to define the size of a company in a given sector or market. Knowing your turnover allows you to place yourself in a market compared to your competitors.  


Therefore, to master a market or a sector, logic would dictate that you know your turnover in great detail. To understand what you are worth in your industry, you can compare your turnover to the average of the whole sector. 






The projected turnover  



It is often according to the turnover that companies are classified by size in their sector. It is essential to know your turnover before you can make a forecast, for example. The turnover forecast is handy. Among other things, you can use it to present your business plan to investors or the company's general management. It can also be used when applying for financing from a bank.  


However, you can also order market studies from specialized service providers to get an idea of prices and purchasing intentions to define your objectives better. 

We want to point out that our firm offers the best services in this field. We will guide you and advise you for better control of your prices, which, coupled with your capacity to enter into contact in a market, is determining within the calculation of your projection. 


Do not break your head. The formula for calculating the projected turnover is straightforward. 

Here it is Projected sales = fixed unit selling price x number of projected sales.  




Fluctuations in sales  



It is important to note that the turnover fluctuates according to favorable or unfavorable economic conditions, seasons, sectors, or management strategies, among other factors.  


A company's revenues can't remain invariable because a company is often called upon to encounter ups and downs in activity throughout its existence.  


But if there is one constant in a company, it is this: sales and expenses are closely linked. The more your order book grows, the more your variable costs increase. 

At least that's the logic because it depends on whether you produce more to keep up with the size of the order volume.  





Turnover: Which ways to optimize? 



It necessarily implies an increase in costs, called variable costs in this case. It can range from recruitment to the purchase of new machines to increase, for example, the sales output. 

This investment may become a necessity. Not only to allow the company to satisfy growing demand and to better position itself in a market, thus keeping its shares or pushing the limits of its network; but also and especially, to ensure the service of this one, if it is threatened by a competition which it would not have supported. It can also allow the company to innovate and thus give a boost to its competitiveness.  


Managing a company is not necessarily a miracle. But some managers stand out thanks to their business sense in terms of risk-taking and anticipation. An asset that is not given to everyone but remains essential for implementing the company's resources to achieve the objectives previously set in terms of turnover and market share.  


Thus, to optimize the turnover and consequently reinforce the company's positioning in a given market, the manager must control three components of the turnover, namely the volume, which includes the quantities of products or services sold, the number of products, or offers and the price.  


Producing more to meet strong market demand is good. But should the offer be competitive? The more diverse the offerings, the more likely they are to meet more needs. 


It would be best if you also played on the prices or tariffs to increase your turnover. 


Another technique is to make your products or services known to many people through marketing and advertising. Once you have established a customer base, you will need to increase the value of the baskets. The creation of several ranges should also allow you to build customer loyalty.  





Sales: It's all about optimization 



Learn to anticipate to not suffer, for example, the consequences of a possible unfavorable economic situation. 

By taking the lead, you could reduce your production to avoid unsold stocks in the event of a drop in demand. Otherwise, you would have lost much money. In some extreme cases, you would have no choice but to either sell some of your equipment or dismissal some of your staff. 


Knowing how to anticipate also means avoiding a lack of cash. As you may probably know, the cash flow of a company must always be positive. In this respect, we advise you to be extremely careful and follow your turnover's evolution very closely. It can have a direct consequence in terms of cash management.  

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