A businessman who creates and runs a business has an apparent main goal: to make a profit. To make a profit, businesses usually offer products or services to consumers, which will be exchanged for money as payment. Here, turnover is the total payment a business receives. So, we can see that turnover has a crucial role for the company, including its business. The level of turnover will affect the running of the company’s business.
What is Turnover?
Turnover is an accounting concept that calculates how quickly a business conducts its operations. That means turnover is the total sales of the company’s goods or services within a certain period. Turnover is gross revenue. Since the income has not been deducted by the cost of good production and other costs needed in the production process to sales, such as electricity, water, employee salaries, and other operational costs. Sometimes gross revenue is a benchmark for classifying the size of a company, for example, small, medium, or large scale companies. However, because the turnover value is still in the form of gross income, the number cannot show how much profit the company has earned. So then, how to calculate turnover? We can calculate the gross revenue by multiplying the number of products sold by the selling price, or in the formula:
Turnover: Number of products sold x product price per unit sold
Related Article: What is ERP and Why is It Important for Businesses?
Difference Between Turnover and Profit
Some people think that turnover and profit are the same things, but the two terms have different meanings. Gross revenue is the total sales of the company’s goods or services within a certain period. At the same time, the company obtains profit from sales. The difference with turnover, the profit has been reduced by costs (production costs, employee salaries, shipping costs, and marketing costs) and cost of good production. Therefore, this can be said as a net profit.
How to Increase Turnover
There are several ways to increase company turnover, including:
Companies need to intensify their promotions to get a more significant gross revenue. The more promotions the company does, the more people will know about the products/services offered, so that their chances of making a purchase will be higher.
Upgrade product quality
Product quality can also bring higher gross revenue for the company. Products that have good quality, although have a more significant production cost, on the other hand can also provide higher profits. People tend to prefer products with the best quality even though they are slightly more expensive. By using good quality products, consumers will put their trust in our business. So if later consumers want to make a purchase again, they will most likely look for products from our company first.
Provide the best service
In addition to products’ quality, companies also need to provide the best service for consumers and non-consumer. The best service will provide value to the business and satisfy consumers because they get communicative and responsive service.
Benefits of Understanding Turnover in Business
From a business point of view, the company should achieve both turnover and profit as much as possible. To realize maximum gross revenue, companies can sell products with fast inventory turnover so that high product turnover rates. However, if the company has slow sales figures, the company must be careful in calculating cash flow and profits so that the company does not directly suffer losses.
In addition, to get a significant profit, the company can choose to sell products that do not have an expiration date to keep the stock for a long time. If sales increase and the company has good cash flow, a company can obtain stock gross revenue and profit.
How to Calculate Turnover
We will present a simple case example of how to calculate turnover.
Suppose a shoe company “Dios” produces 500 pairs of shoes this month. The price for each pair of shoes is $200. To produce 500 pairs of shoes, Dios incurs a total operating cost of $5700. This month, with the help of the POS Retail system, Dios managed to sell 500 pairs of shoes. So the income or turnover received by the Dios company is $ 10000. Meanwhile, the profit obtained by Dios is the result of a reduction in gross revenue with a total operating cost of $4300.
Related Article: Letter of Credit: A Guarantee Document for Export-Import Activities
Turnover is the total sales of goods or services of the company in a certain period, which this gross revenue can be used as a factor to measure the scale of the company’s size. By maximizing the gross revenue obtained, the company also directly increases the profits that the company earns. The company can maximize the gross revenue by selling products with a fast gross revenue rate or carefully calculating cash flow.
Hashmicro Accounting System can help your company in managing all financial aspects, from income, cash balances, accounts receivable, accounts payable, budget management to making profit and loss reports, cash flows, balance sheets, changes in capital, and more in seconds with one integrated system.