Turnover refers to the total revenue that a company generates through its normal business activities within a certain period, usually within a financial year (annual turnover) or quarter. This includes the sale of goods, products or services before any costs or expenses are deducted. Turnover is a key indicator of a company's operations and success, as it provides an indication of how effectively the company is carrying out its main activities and generating revenue. It is often referred to as the "top line" as it is listed at the top of the income statement before any deductions are made for costs, taxes and other expenses.
Turnover includes all income that a company generates through its core business activities. This includes in particular
This revenue is usually considered before deducting costs such as returns, discounts and VAT to determine gross sales. After deducting these items, the net turnover is obtained, which reflects the actual revenue received by the company.
Turnover does not include all income that is generated outside a company's regular business activities. This includes in particular
These items are generally classified as other income or non-operating income and reported separately from sales in the income statement, as they are not the result of primary business activities.
Here is a table that summarizes what counts as turnover and what does not:
| Counts towards turnover | Does not count towards turnover |
|---|---|
| Proceeds from the sale of products or goods | Investment income such as interest and dividends |
| Income from services | Income from the sale of fixed assets |
| License income | Compensation payments received |
| Income from rental and leasing | Subsidies and grants |
| Income from extraordinary items |
The distinction between gross and net sales is important when analyzing a company's financial performance, as it provides insight into the effectiveness of sales strategies and the quality of sales. Net sales provide a more realistic overview of how much revenue is actually generated that is available to cover operating costs and generate profits.
The following diagram shows the difference between gross and net sales as an easy-to-remember graphic.
A distinction is made between gross and net sales as follows:
Gross sales refers to the total revenue from the sale of products or services without deducting any sales costs, discounts, returns or VAT. It is the raw revenue figure that a company generates.
Net sales, on the other hand, is the amount that remains after deducting these items from gross sales. This means that discounts, returns and VAT are deducted to determine the actual revenue accruing to the company.
Important technical terms and synonyms
on the topic of turnover
| Term | Explanation |
|---|---|
| Turnover | Total income from the sale of goods or services before deductions. |
| Proceeds | Income from the sale of products or services; often used synonymously with turnover. |
| Earnings | Total financial performance of a company, including sales and other income. |
| Revenue | Cash inflow into a company, including sales, investments and other sources. |
| Sales tax | Tax on the sale of goods and services that is collected by the seller and paid to the tax office. |
| Loss | Negative result when a company's expenses exceed its income. |
| Gross sales/turnover | Total revenue from sales before deduction of discounts, returns and VAT. |
| Net sales/turnover | Revenue after deduction of discounts, returns and VAT. |
| Return on sales | Percentage of sales that remains as profit after deduction of all costs. |
| Direct costs | Costs that can be directly allocated to the manufacture of a product or the provision of a service. |
| Indirect costs | Costs that cannot be directly allocated to a product or service, e.g. administrative costs. |
| Variable costs | Costs that vary with the quantity produced, e.g. raw materials. |
| Fixed costs | Costs that are incurred regardless of the quantity produced, e.g. rent. |
This is a table of terms related to turnover and their respective explanations. This table provides a comprehensive overview of the various financial terms that are directly related to a company's turnover and helps to develop a deeper understanding of financial terminology.
The turnover of a company is usually calculated using the following formula:
Sales=Number of units sold×Price per unit
This simple formula applies to both product and service companies, where "number of units sold" represents the quantity of products sold or the number of services provided and "price per unit" represents the selling price per product or service.
For companies that offer different products or services, the total turnover can be calculated by adding up the turnover for each product or service category:
Total sales=∑( Number of units sold×Price per unit)
where "unit" represents each product or service category.
This calculation indicates gross sales before any deductions such as discounts, returns or VAT are taken into account. To calculate net sales, these deductions must be subtracted from gross sales.
Here is a sample calculation for the turnover of a company:
Total turnover of the company: 2000 Euro+4500 Euro=6500 Euro
The company therefore achieves a total turnover of 6500 euros from the sale of product A and B.
How is sales tax calculated in this context?
Find out more about basic economic terms in our lexicon. Deepen your knowledge with our lexicon!
To the ArticleIn relation to turnover, there are some other important differences or terms that require further explanation.
Turnover and profit are two basic but different financial indicators that measure a company's financial performance:
To summarize: While turnover represents the total revenue generated, profit is what is left after deducting all costs and expenses. Both key figures are essential for assessing the financial health and performance of a company, but they reflect different aspects: turnover the sales performance and profit the profitability.
The difference between value-based and volume-based sales lies in the way in which sales are measured:
While value-based sales shed light on the financial dimension of a company's sales success, volume-based sales provide information on the physical dimension of the products or services sold. Both figures are important for analyzing business performance, but offer different perspectives on a company's sales activities.
A negative profit or loss occurs when a company's total costs and expenses exceed its total income and sales within a certain period of time. In other words, when expenses exceed income, this results in a loss. This condition indicates that the company is spending more money on its operating, production, distribution and other costs than it is earning from the sale of its products or services. A sustained loss can jeopardize the financial stability and sustainability of a company. Losses are reported in a company's income statement and are an important indicator of its financial health.
A "good" return on sales/profit ratio varies depending on the industry and market conditions. In general, a return on sales (profit margin) of 5-10% is considered solid for many industries, while higher margins of 15-20% or more are considered particularly strong in certain sectors such as software or internet services. It is important to evaluate this ratio in the context of the specific industry and over time to properly assess trends and the financial health of a company.
Turnover refers to the total income that a company generates through its business activities, typically the sale of goods or services, within a given period.
Revenue is the total amount a company receives from various sources, including sales, interest and other income.
Expenses are the costs incurred in creating and selling the products or services and in managing the business. Revenue minus expenses equals the company's profit or loss.
The key figure that indicates the ratio of profit to sales is the return on sales, also known as the profit margin. It is calculated by dividing profit by turnover and often expressing the result as a percentage to show what proportion of turnover remains as profit.
The costs can be calculated by subtracting the profit from the turnover. Expressed mathematically: costs = turnover - profit. This formula is based on the fundamental assumption that the profit is the result of the turnover minus the costs, which can be converted to determine the costs.
Gross turnover refers to a company's total revenue from the sale of goods or services, without deducting costs or expenses. Net turnover, on the other hand, takes into account deductions such as discounts, returns and VAT, i.e. the revenue that remains after these items have been deducted. Net turnover therefore indicates the actual revenue that the company receives from its business activities.
Our Bachelor's and Master's degree programs provide you with the relevant knowledge and skills you need for a successful career.
Did you find this article helpful? Do you have any suggestions or questions about this article? Did you notice something or is there a topic you would like to learn more about in our dictionary? Your feedback is important to us! This helps us to constantly improve our content and deliver exactly what you are interested in.
Contact editorial office
