What Is Sales Turnover?
Sales turnover is a somewhat uncommon term that refers to how much money is brought in through sales over a specified time period. Sales turnover can be referred to as commercial revenue or sales.
In some situations, the term sales turnover may refer to a concept more similar to inventory turnover, which indicates how many times a company has “turned over” (sold and replaced) inventory during a specified period of time. In this case, the term is used to bring attention to the business’s efficiency instead of its revenue.
What’s the Difference Between Sales Turnover and Revenue?
Sales turnover is the same thing as operating revenue. In other words, sales turnover is equivalent to net revenue less non-operating revenue. Operating revenue refers to revenue that is made through a company’s main business activities, such as sales, while non-operating revenue refers to money made through non-primary activities, such as interest and investments.
However, sales turnover is sometimes used in place of a term more similar to inventory turnover, which is very different from revenue. Inventory turnover provides information about how quickly and efficiently goods are being sold, not how much money is being made on them.
How Do You Calculate the Sales Turnover Ratio?
The sales turnover ratio can be calculated by dividing your sales by the book value of the invested capital. For example, if you made $100,000 in sales, and the value of your invested capital was $50,000, your sales turnover ratio would be 2.
However, if you are using sales turnover to mean something more akin to inventory turnover, you can calculate it by dividing the COGS (Cost Of Goods Sold) by the average value of your inventory ((Beginning Inventory + Ending Inventory) / 2). So, if you’re COGS was $50,000 and your average inventory value is $40,000, your sales turnover ratio would be 1.25.
See our full list of over 50 Small Business Terms here.