Turnover: Overview, definition, and example
What is turnover?
In a business context, "turnover" generally refers to the total revenue or sales generated by a company within a specific period, typically a year. It represents the amount of money earned through the sale of goods or services. The term can also refer to the rate at which employees leave and are replaced in an organization, known as employee turnover. In both cases, turnover is a key metric used to assess business performance or staffing stability.
In simpler terms, turnover can either refer to the total sales a business generates or how often employees leave and are replaced in the company.
Why is turnover important?
Turnover is important because it provides valuable insights into the performance of a business or the stability of its workforce. For companies, understanding their revenue turnover helps them gauge their market position, growth, and financial health. Similarly, employee turnover helps businesses understand their work environment and staffing needs. A high employee turnover rate can signal issues such as poor job satisfaction or management practices, while high sales turnover indicates strong business performance.
For SMB owners, tracking both financial turnover and employee turnover is crucial for evaluating success, making strategic decisions, and identifying areas for improvement in operations or HR practices.
Understanding turnover through an example
Revenue Turnover: Imagine a small business that sells handmade furniture. In one year, the total revenue from all sales (after accounting for discounts, returns, and taxes) is $500,000. This $500,000 is the business's annual turnover, which reflects the total amount of money the company earned from sales during that period. Monitoring turnover helps the business owner assess whether sales goals are being met and where growth opportunities might exist.
Employee Turnover: In another case, a small tech company experiences a high rate of employee turnover. Over the past year, 10 employees have left the company, and 8 new employees have been hired to replace them. The company calculates its turnover rate by dividing the number of employees who left by the total number of employees, showing that the turnover rate is higher than the industry average. This high turnover might indicate dissatisfaction with work culture, benefits, or management practices, prompting the company to investigate and improve retention strategies.
Example of a turnover clause
Here’s how a turnover-related clause might look in a contract or business document:
“The Company’s annual turnover shall be calculated based on total revenue generated through the sale of products and services during the fiscal year. The Parties agree that achieving a turnover of at least $[insert amount] is a key performance indicator for the Company’s business operations and growth.”
Conclusion
Turnover is a crucial measure for businesses, whether it refers to the revenue generated from sales or the rate at which employees leave and are replaced. For SMB owners, understanding turnover helps in assessing business health, profitability, and workforce dynamics. By closely monitoring and managing turnover, businesses can make informed decisions to improve their performance and employee satisfaction.
Regularly tracking both financial turnover and employee turnover helps ensure that the business is on track for success and highlights areas where improvements can be made, ensuring long-term growth and stability.
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.