How to calculate turnover of a company?

To determine your rate of turnover, divide the total number of separations that occurred during the given period of time by the average number of employees. Multiply that number by 100 to represent the value as a percentage.

Also known as income or gross revenue, turnover is the total amount of sales you make over a set period. This could be weekly, monthly, quarterly or annual turnover - whatever time period you choose to measure. Basically, it’s all the money that comes into your business before any expenses and operating costs are deducted.

It’s not to be confused with profit which measures your overall earnings and is reached by subtracting your total expenses from your total sales.

It can also refer to labour turnover or turnover rate - the number of employees which leave your business within a set period.

Some experts argue that knowing your net profit is a better measure of financial success than business turnover. Indeed, you can have impressive sales but also extremely high costs, meaning your profit is actually very low. But turnover can reveal more than just profit margins.

Knowing your turnover figure can help when trying to win over investors. It can also function as a guide when setting profit margins and assessing how to reach profit-related goals.

For instance, income which falls short of targets indicates poor sales. This can give you a heads up that something’s not right, as well as a chance to rectify it. Examples of where you might be going wrong include prices being too high and/or a weak marketing strategy.

People often talk about these two things in the same breath, but they’re distinct terms and understanding the differences is essential:

If gross profit is low compared to business turnover, you might want to look at reducing sales costs. If net profit is low, on the other hand, you may need to reduce operating expenses.

It’s very important you record your sales turnover from the start. This involves recording it at the time of the sale, not when an invoice is raised or cash changes hands. It must take into account any expenses a customer pays for too, such as delivery costs. Commission and fees should also not be deducted at this stage.

Turnover doesn’t include VAT because technically VAT doesn’t belong to the company. You collect VAT on behalf of the UK government and pay it to HMRC. However, knowing your exact annual turnover is essential for paying the correct amount of VAT. In fact, miscalculating your sales turnover could result in you paying too much or too little VAT.

Turnover is calculated by adding up all business income over a set period, including all sales of goods and services.