What is sales turnover?
Sales turnover refers to business revenue from selling products and services during a given period. In many cases, the period is one full accounting year, and it includes only revenue from operations, not gained from other non-operating activities, such as interest income earned.
Companies use sales turnover to understand how much they’re selling within the one-year timeframe. This measurement helps businesses identify changes in their activity levels, whether they’re minor or significant. Understanding and calculating revenue are crucial to the success of any organization. Revenue management software enables enterprises to monitor income, including sales turnover, while matching their sales with customer payments and reducing revenue leakage.
Benefits of calculating sales turnover
Several benefits make sales turnover an essential metric for businesses to track. Below are some of the benefits an organization can expect when doing so:
- A better grasp of inventory. Understanding sales turnover can inform inventory decisions for companies selling products. A high sales turnover means an increased number of products were sold in the specified period, which means a company can make data-driven decisions by tracking inventory and how it relates to future sales.
- Predicting common revenue trends. Regularly reviewing revenue from operations allows enterprises to identify common revenue trends and forecast sales over recurring periods. Knowing common trends helps reveal slow periods and spikes in sales.
- Reveals company growth and sales success. When turnover rates are high and a high number of products are sold, this indicates success and could also be a sign of business growth.
Basic elements of sales turnover
Calculating sales turnover is easy and only requires a couple of variables. The following elements or key variables are needed to calculate sales turnover for businesses:
- Accurate products and service numbers: Companies should track their products and services' starting and ending inventory calculations. This means the number of products or services a company has before selling and remaining at the end of the chosen period.
- Sales period: In most cases, sales turnover is calculated over a one-year timeframe, but companies can choose a timeframe that works best for their business.
How to calculate sales turnover
Calculating sales turnover is relatively straightforward. The formula to calculate sales turnover is:
Sales turnover ratio = # of products or services sold during sales period / # of products or services at the start of the sales period
For example, Company X wants to calculate an annual turnover rate. Company X orders 1,500 products at the beginning of the year and sells all 1,500 products by the end of the calendar year. The turnover rate would be 100%.
If Company X ordered 1,500 products and sold 500 by the end of the calendar year, the turnover rate would be 33.33%.
Sales turnover best practices
Understanding the sales turnover rate of a business can be valuable. There are a few general best practices companies can follow to get the most out of their calculations, including:
- Reviewing and double-checking the numbers. Accuracy is necessary to understand turnover rates fully. Companies should double-check their numbers as even a slight variation can significantly impact. Have multiple eyes review the data to ensure the math is correct.
- Define what a healthy turnover rate is. A high turnover rate indicates a company is selling an increased number of products or services during a specific time period, but that can look different across enterprises. Businesses should pay attention to their turnover rates over time to understand what is healthiest for them.
Sales turnover vs. inventory turnover rate
Sales turnover is sometimes used interchangeably with inventory turnover rate, but these metrics differ slightly.
Businesses calculate sales turnover to understand how much revenue was generated from selling products and services over a given period, such as an accounting year. On the other hand, inventory turnover rate is an accounting metric that measures the number of times inventory is sold and replenished during a specific period.
Alyssa Towns
Alyssa Towns works in communications and change management and is a freelance writer for G2. She mainly writes SaaS, productivity, and career-adjacent content. In her spare time, Alyssa is either enjoying a new restaurant with her husband, playing with her Bengal cats Yeti and Yowie, adventuring outdoors, or reading a book from her TBR list.
