When people think of sales, they probably don’t think much about turnover. Most people usually talk about sales in terms of revenue and pay little attention to turnover. However, for businesses that sell high-value or expensive items, turnover is closely related to the idea of sales.
Turnover and revenue are often used interchangeably, primarily in the accounting industry. However, these two financial terms don’t mean the same thing, and as a business owner, you should know the difference between turnover and revenue.
To understand the difference between turnover and sales, one must know what both are and how they are related. This article focuses on giving an actual definition of turnover instead of presenting theoretical problems.
Revenue
Ready to learn about revenue? Awesome! We’ll start by defining what revenue means and go from there. Sounds good? Let’s get started!
Definition
The sum of cash an organization or company makes by selling items or services is revenue. It can also be described as the entire amount a business earns in exchange for goods and services from its customers.
Revenue is usually calculated by adding up all the money that a company has received from its customers, then subtracting any costs that it has to pay to produce those goods and services.
Donations and subscriptions are all revenue generators for non-profit organizations. Revenue is the entire sum of money a profit-making organization gains by selling its products or services.
Types
The revenue has two forms-
Operating revenue
Operating revenue is the money a firm makes from its day-to-day operations. This figure comprises all the items and services it offers, fewer sales costs.
Non-operating revenue
Non-operating revenue is money a firm raises from other than operations, such as dividends or rentals. This form of income could be used to make up for the shortfall in the day-to-day operations.
Importance
Among the most significant measures for every organization is revenue, which shows the amount of money a firm has made from its sales. It also assists them in determining the strength of their company, the size of their customer base, and their market share.
Formula to calculate
Formula to calculate Total revenue = Total sales – returns.
Reporting
The first line item on the income statement is revenue. The whole sum of funds a corporation has made from its activities is revenue. Revenue can be generated from products and services sold or developed from investments and other sources.
A corporation’s revenue must be documented in its accounting records. It’s the first line item on the annual report. The expenses incurred by a company during the period are subtracted from this total to calculate net income.
Turnover
Turnover. Are you familiar with the term? If not, don’t worry; this is the perfect place to learn how it can ruin your business!
Definition
Turnover is a financial service that can calculate the amount of cash that a business or company has spent.
Turnover allows small businesses to track their cycle of purchases, sales, and inventory re-orders. If the turnover is low, not much inventory is being sold, and the company needs to order more merchandise. If it is high, there is a high demand for the products, and there needs to be an increase in production.
Types
The turnover has three types-
Inventory turnover
Inventory turnover is a monetary metric that compares how often a firm has traded and replenished inventory over a specific period, such as an annum.
Cash turnover
Cash turnover is how often a firm has spent its capital during the accounting periods.
Labor turnover
In a particular period, the proportion of workers who exited to all who remained on the payroll system is known as labor turnover. Staff can depart for various reasons, including attrition, retirement, or firing.
Importance
A substantial turnover rate might be a warning sign for a business. It can mean that the company is not doing well enough to keep its employees satisfied and loyal.
A low turnover rate might be interpreted as a sign of employee happiness. The employee is more likely to stay in the job longer if they are happy with what the company offers.
The turnover rate is also essential because it allows businesses to manage company resources efficiently.
Formula to calculate
To calculate the turnover of a company-
- Net sales divided by cash turnover equals cash turnover.
- Total asset turnover is calculated as sales revenue divided by average total sales.
- Fixed asset turnover is the ratio of fixed assets to net fixed assets.
Reporting
The ratio of sales to turnover is how businesses can measure their production efficiency. A company doesn’t need to report turnover, but it must calculate the percentage of sales to turnover. This will help them better understand their financial record.
Integral differences between revenue and turnover
- Revenue impacts a firm’s financial achievement, whereas turnover impacts its efficiency.
- The sum of financial resources a firm produces by marketing its merchandise to clients is revenue. Turnover, on the contrary, is the couple of times a firm’s assets, such as inventory, capital, and employees, are consumed.
- Revenue is documented as Sales on financial statements, and all significant companies must disclose it. Turnover, on the contrary, is not required to be filed and is estimated to comprehend the reported statistics.
- A firm’s income can be calculated by the ratio of units sold by the rate per income. The frequency of workstations sold annually, on the other hand, can be used to calculate turnover.
- Revenue can come from both operational and non-operating sources. The revenue generated by ordinary daily operations is referred to as operating income. Non-operating incomes, on the other hand, are revenues that come from non-activities such as rentals, dividends, and so on.
- Understanding revenues is vital since it aids in assessing the firm’s sustainable growth; however, understanding turnover is crucial to monitor productivity levels and guarantee that nothing is rendered unusable as inventories for a lengthy period.
Wrapping Up
Turnover and profit are two sides of the same coin for businesses that sell high-value or expensive items. This is something that is not usually considered by individuals working in companies. Business owners often focus on the revenue side instead of the turnover side. It is a common mistake to do so, but it can be avoided by adjusting your thinking to focus on instead of just revenue. As a business owner, it is good to have a trading account from any of the bitcoin banks which is helpful to trade and store cryptocurrencies to increase your profit.
