Ever heard of the term turnover? Because that’s what today’s blog post will be about… 

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Business turnover is a great way of measuring success. Turnover is often confused with profit which is incorrect. So how do you calculate business turnover? Continue reading this blog where we will deep dive into everything you need to know about turnover and how to calculate turnover.

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Difference between turnover and profit

Turnover within the business is not the same as profit, however many people confuse the two.

Turnover refers to the total business income over a set period of time (net sales margin), whereas Profit is your earnings left over after your expenses have been deducted.

There are 2 ways of calculating profit:

1. Gross profit – which is sales minus the cost of the product or service at hand

2. Net profit – which is the figure that is left after any deductions expenses such as tax, administration & VAT.

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How to calculate the turnover of a company?

Calculating turnover figures is fairly simple to do if you’re keeping accurate records of your current sales.

Here’s an example of how to calculate your business turnover figure:

• Turnover (total sales) = £40,000
• Cost of goods sold (COGS) = £20,000
• Gross income = £20,000
• Operating costs (administrative expenses) £10,000
• Net profit = £10,000
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Business turnover definition

If you are calculating turnover for a small business then check out all the meanings down below.

Turnover / total sales –

Turnover (annual turnover) is your yearly income before any expenses or costs of goods sold. It is calculated within a specific period of time (usually calculated within the financial year).

Costs of goods (COGS) – 

Costs of goods are the costs which you need to pay for the product or services you are selling.

For example, you may sell a service for £30 however it may cost your business £10 to fulfil the service.

Total sales minus costs.

Example of costs of goods:

• Material
• Items purchased for resale
• Shipping / Freight costs
• Labour costs
• Storage costs
• Factory overheads
• Operating expenses

The formula for costs of goods is:

Starting inventory + Purchases – Ending Inventory = Costs Of Goods Sold.

Gross profit –

Gross income / Gross profit is the money prior to paying for any administrative expenses, taxes, or vat.

Are gross profit and net income the same?

No, Gross Profits & Net income are not the same. Gross profits are the company’s profits earned after any expenditures for the cost of the product or service also known as COGS – Cost of goods sold.

Net Profit – 

Net profit is what you end up taking home after all expenditures & taxes.

Is net income the same as profit?

Typically net income and profit represent the same meaning which is the final measure of profitability after any expenses are deducted from your revenue.

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How to calculate VAT turnover

When calculating VAT current turnover you need to, first of all, calculate your normal turnover and then subtract any amount that can be excluded from tax.

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Benefits of calculating turnover

When you how to calculate your business turnover you are then able to see your business’s performance it is a great way of measuring performance within your business. You are also able to do this every year or every half year.

Typically when your business turnover is increasing it is a key indicator of business growth.

Calculating turnover can also highlight cracks in your business you will be able to spot any issues prior very quickly. For example, let’s say your company is selling a product and you may think it’s profitable however after COGS that product may not be as profitable as you once thought so you may then decide to up your prices.

Understanding what is turnover is vital to any business owner especially if you are trying to grow your small business.

In some cases, a business generates loads of sales but they don’t calculate their turnover and net profits correctly and what they think is their most profitable product ends up not being as profitable as they thought.

Our expert team of advisers at Cangaf can help with your business finance so get in touch and speak with our small businesses’ gross revenue specialist today.

For further general accounting questions feel free to contact us whenever and we will be able to assist you further.

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Our team can also help with:

• Bank interest
• Securing investment
• Calculating total income within a certain period
• accounts receivable turnover
• Saving money on taxes & calculating other expenses

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Have a nice day and see you guys next time !! 🖐️😉