Definition of Turnover

Turnover refers to the total revenue or sales generated by a business within a specific period. It can also describe the rate at which assets, employees, or inventory are replaced or used within an organization.

For example, a Canadian retail company with annual sales of 5 million dollars reports its turnover as total revenue for the year. In HR, turnover refers to the percentage of employees who leave and are replaced over time.

Purpose of Turnover in Business and Finance

Turnover is an essential metric in various areas, including:

• Revenue Measurement – Determines total business income from sales.
• Operational Efficiency – Assesses how quickly a company utilizes inventory or assets.
• Employee Retention – Tracks workforce stability and hiring effectiveness.
• Investment Evaluation – Measures how frequently stocks or funds change within a portfolio.
• Financial Health Analysis – Helps businesses identify growth trends and performance gaps.

Types of Turnover

Sales Turnover

• Represents the total revenue generated from selling goods or services.
• Example: A Canadian e-commerce business reports 1.2 million dollars in annual sales turnover.

Inventory Turnover

• Measures how frequently a company sells and replaces inventory within a given time.
• Example: A grocery store with high inventory turnover sells perishable goods quickly.

Employee Turnover

• The rate at which employees leave and are replaced within a company.
• Example: A tech startup with a 30 percent annual employee turnover may need to improve retention strategies.

Asset Turnover

• Indicates how efficiently a company uses its assets to generate revenue.
• Example: A transportation company with a high asset turnover efficiently uses its fleet to maximize revenue.

Portfolio Turnover

• Measures how frequently assets within an investment portfolio are bought and sold.
• Example: A mutual fund with a 50 percent turnover rate replaces half of its holdings in a year.

How to Calculate Turnover

Sales Turnover Formula

Sales Turnover = Total Sales Revenue

Example: A small business earning 500,000 dollars in sales for the year reports a turnover of 500,000 dollars.

Inventory Turnover Formula

Inventory Turnover = Cost of Goods Sold (COGS) / Average Inventory

Example: If a company’s COGS is 1 million dollars and its average inventory is 250,000 dollars, the inventory turnover is:

1,000,000 ÷ 250,000 = 4 times per year

Employee Turnover Rate Formula

Employee Turnover Rate = (Employees Who Left / Average Number of Employees) × 100

Example: A company with 10 employees leaving out of 100 in a year has a turnover rate of:

(10 ÷ 100) × 100 = 10 percent

Turnover vs. Profit

Feature	Turnover	Profit
Definition	Total revenue or sales	Earnings after deducting expenses
Focus	Business activity and sales volume	Financial health and profitability
Importance	Indicates market demand and efficiency	Measures success and growth potential

Example: A business with high turnover but low profit may need to reduce expenses or adjust pricing strategies.

Advantages and Disadvantages of Turnover

Advantages

• Helps businesses track sales growth and performance.
• Indicates efficiency in inventory and asset management.
• Provides insights into employee retention and workforce stability.

Disadvantages

• High employee turnover can lead to increased hiring costs.
• Excessive inventory turnover may indicate supply chain inefficiencies.
• Revenue turnover does not account for profitability or expenses.

Related Terms

• Revenue – Total income generated from business operations.
• Liquidity Ratio – A measure of a company's ability to cover short-term liabilities.
• Retention Rate – The percentage of employees or customers retained over time.

Interesting Fact

In Canada, retail and hospitality industries experience some of the highest employee turnover rates, often exceeding 50 percent annually, due to seasonal employment and part-time jobs.

Statistic

According to Statistics Canada, over 75 percent of small businesses track sales turnover regularly to assess financial performance and market demand.

Frequently Asked Questions (FAQ)

1. How is turnover different from revenue?

Turnover refers to total sales, while revenue includes all income sources, such as investments and service fees.

2. What is a good inventory turnover ratio?

A healthy inventory turnover ratio varies by industry, but a ratio between 4 and 6 is generally considered optimal.

3. How can businesses reduce employee turnover?

Companies can improve employee retention through competitive salaries, career development programs, and a positive work environment.

4. Why is high asset turnover important?

A high asset turnover indicates that a business efficiently utilizes its assets to generate revenue.

5. How do investors use portfolio turnover?

Investors use portfolio turnover rates to determine how actively a fund is managed and assess transaction costs.