Turnover

Turnover refers to the total sales or revenue generated by a company within a specific period.
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Updated: May 30, 2024

3 key takeaways

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  • Turnover can refer to a company’s total sales or revenue generated within a particular period.
  • It can also describe the rate at which employees leave and are replaced within an organization.
  • Turnover is a key indicator of a company’s operational efficiency and workforce stability.

What is turnover?

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Turnover is a financial and operational metric used to assess the performance and efficiency of a company. Depending on the context, it can refer to either sales revenue or employee turnover:

  • Sales turnover: This refers to the total value of sales or revenue generated by a company over a specific period, typically measured annually, quarterly, or monthly. It is an important indicator of a company’s market performance and growth.
  • Employee turnover: This measures the rate at which employees leave an organization and are replaced by new hires. High employee turnover can indicate potential issues with job satisfaction, work environment, or management practices.

Types of turnover

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Turnover can be categorized into different types based on its context:

  • Sales turnover: This includes the total sales revenue generated by a company from selling its goods or services. It is calculated as: Sales Turnover = Total Sales Revenue
  • Inventory turnover: This measures how often a company’s inventory is sold and replaced over a specific period. It is calculated as: Inventory Turnover = Cost of Goods Sold / Average Inventory
  • Employee turnover: This includes voluntary turnover (employees leaving by choice) and involuntary turnover (employees being terminated or laid off). It is calculated as: Employee Turnover Rate = (Number of Separations / Average Number of Employees) ×100

Implications of turnover

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Turnover has significant implications for a company’s financial health and operational efficiency:

  • Sales turnover: High sales turnover indicates strong market demand and effective sales strategies. It reflects the company’s ability to generate revenue and grow its market share.
  • Inventory turnover: High inventory turnover suggests efficient inventory management and strong sales performance, while low turnover may indicate overstocking or weak sales.
  • Employee turnover: High employee turnover can lead to increased recruitment and training costs, loss of organizational knowledge, and potential disruptions in productivity. Conversely, low turnover generally indicates a stable and satisfied workforce.

Examples of turnover

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Turnover metrics are commonly used across various industries:

  • Retail: In retail, sales turnover is a critical measure of performance, reflecting the volume of goods sold. Inventory turnover is also crucial, as it indicates how quickly products are moving off the shelves.
  • Manufacturing: In manufacturing, inventory turnover measures the efficiency of inventory management and production processes. High turnover rates typically indicate effective operations and strong demand for products.
  • Human resources: In HR, employee turnover rates help organizations assess workforce stability and identify areas for improvement in employee retention and satisfaction. High turnover rates may prompt companies to investigate issues related to job satisfaction, compensation, and work environment.

Understanding turnover is essential for evaluating a company’s performance, efficiency, and workforce stability. For further exploration, topics such as financial analysis, inventory management, and employee retention strategies provide deeper insights into the various aspects of turnover and its impact on business operations.



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Arti
AI Financial Assistant
Arti is a specialized AI Financial Assistant at Invezz, created to support the editorial team. He leverages both AI and the Invezz.com knowledge base, understands over 100,000... read more.