Turn-over: Overview, definition, and example
What is turn-over?
Turnover, in a business context, refers to the total revenue or sales generated by a company during a specific period, usually measured annually or quarterly. It can also refer to the rate at which employees or inventory are replaced within an organization. Depending on the context, turnover can either measure financial activity (like sales or revenue) or operational activity (like employee or stock turnover).
For example, when discussing sales, turnover refers to the total amount of business a company conducts in terms of revenue, while in the context of employees, turnover refers to the number of staff members who leave and are replaced over a given period.
Why is turnover important?
Turnover is important because it is a key indicator of a company’s financial performance or operational efficiency. For businesses, high turnover in terms of revenue or sales often signals healthy growth and market demand. On the other hand, employee turnover can indicate issues within the company, such as dissatisfaction or inadequate working conditions, which could affect productivity and morale.
Tracking turnover helps businesses assess their market position, plan for growth, and identify areas for improvement, whether in terms of sales, workforce management, or inventory management.
Understanding turnover through an example
Imagine a small business that sells clothing. Over the course of a year, the company generates $500,000 in revenue from its sales. In this case, the turnover (in terms of sales) is $500,000. The company’s management uses this figure to assess its performance and compare it with previous years or industry standards.
In another example, a business might experience high employee turnover, with 30% of its employees leaving the company in a year and being replaced. This could indicate problems with employee satisfaction, compensation, or company culture, and the business might need to investigate the cause of the high turnover to improve retention rates.
An example of a turnover clause
Here’s how a turnover-related clause might look in a business agreement:
"The Tenant shall pay the Landlord a turnover-based rent, calculated as 5% of the Tenant’s annual turnover. The Tenant shall provide the Landlord with an audited statement of turnover within 30 days of the end of each fiscal year."
Conclusion
Turnover is a critical metric for businesses to measure both their financial success and operational efficiency. Whether referring to sales revenue or employee turnover, it helps businesses understand growth, challenges, and areas that need attention. For SMBs, tracking turnover in both revenue and workforce can inform key decisions about business strategy, employee retention, and market competitiveness.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.