Revenue vs Turnover: Definitions, Differences and Examples
By Indeed Editorial Team
Published 29 May 2022
The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.
In standard business terminology, revenue and turnover refer to a company's total sales or income over time. Even though they may describe similar ideas and are often interchangeable in many contexts, there are key differences in their meanings and functions. If you oversee a business's finances, it's helpful to understand these differences and how they relate to a company's performance. In this article, we define revenue and turnover, explain how to calculate them, discuss their differences and review business examples to help you better understand both terms.
Revenue vs turnover
Here are the key differences when comparing revenue vs turnover:
Revenue is a key indicator of a company's ability to earn from selling its goods and services. This figure helps businesses or stakeholders, like investors, understand the customer base and market share. A high revenue figure indicates stability and signals confidence, which can help the company qualify for financing, such as credit loans, to expand its business operations further.
On the other hand, turnover relates more to the performance efficiency of a company as it refers to the number of times a business uses an asset that generates income. Inventory and asset turnover reflect the number of times a company replaces inventory or assets. Organisations can use these numbers to utilise resources efficiently, so production can continue without delays or interruptions that may impact profits.
As of 2022, under Singapore's Accounting and Corporate Regulatory Authority guidelines, it's mandatory for a company to report its revenue for a financial period in an income statement. Businesses typically report revenue as sales, and shareholders, management or investors can analyse these figures when planning operations or making business decisions for the next financial period. Businesses are not obligated to report their turnover, as turnover-related metrics are mostly internal performance indicators. For example, a company's management, purchasing manager or accountant may use inventory turnover to determine how liquid the business is or how to use assets optimally.
There are two main types of revenue: operating and non-operating revenue. Both the operating and non-operating revenues are essential to the company because they generate income in different ways. Non-operating income can sometimes contribute significantly to the overall revenue, since it may involve significant investment gains the company earned.
There are also three types of turnover that can reflect a company's financial and operating performance: inventory, asset and employee turnover.
What is revenue?
Revenue is the income that a company earns from its main operating activities. This may be selling goods and services to customers if it's a for-profit company. Alternatively, non-operating activities like rent, selling plant assets or property, investment sales and dividends earned can also generate revenue. As for a non-profit company, revenue can take the form of donations or membership fees.
As the first item on a company's income statement, revenue, or the top line, is a company's earnings before any deductions, such as the costs of goods sold, expenses and depreciation. All for-profit businesses aim to grow their revenue and reduce expenses to generate maximum profit.
Before you learn how to calculate revenue, it helps to understand that businesses classify revenue as gross or net revenue. Gross revenue is the total revenue the company earns in a given period. Net revenue is the amount after deductions and adjustments. To calculate revenue, you can use the following formula:
Revenue = average price of product or service × number of units sold or customers
If a company sells a product, you can multiply the number of units sold by the unit's price. If a company sells a service, you can multiply the number of customers by the service price. Add this operating revenue to any non-operating revenue, like interest received, to get the gross revenue figure. For example, if a software company has 5,000 customers who each pay an annual subscription of $100 for their product, its operating revenue would be $500,000. If the company gained $10,000 in interest income, the gross revenue would be $510,000.
What is turnover?
Turnover, in business terminology, refers to the total value of the sale of goods and services during the financial year. In finance and accounting, turnover is the number of times an asset revolves during an accounting period, which helps the business owners understand how efficiently they're managing resources. For instance, inventory turnover refers to the rate at which a business can sell off its inventory within a specific period. Knowing this turnover can help companies plan their purchases or re-order their inventories to meet demand.
Asset turnover relates to how a business can sell off its asset before the end of its useful life to generate revenue. Conversely, turnover can also describe non-business-related activities that don't generate sales or revenue. Employee turnover refers to the rate at which a business loses and hires employees, an important metric that may affect the efficiency of business operations. Although not all turnover-related terms directly refer to revenue, they're still important indicators of business growth and performance.
Before you learn how to calculate turnover, it's important to choose the right metric. You can follow these steps to calculate the different types of turnover:
Follow these steps to determine inventory turnover:
Choose the accounting period. Usually, this period is monthly, quarterly or annually.
Calculate your average inventory for the period. Add the ending inventory numbers to the beginning inventory numbers and divide them in half.
Calculate the costs of goods sold. Add the beginning inventory with the sum of expenses and purchases, then subtract the ending inventory.
Divide the cost of goods sold by your average inventory to get your inventory turnover ratio.
To calculate your asset turnover ratio, you can follow these steps:
Calculate net sales. Add the total values for discounts, allowances and returns, then subtract this figure from your gross sales.
Calculate total assets. This is the sum of your equity and liabilities.
Divide net sales by total assets. This number is your asset turnover ratio.
Here's how to calculate your employee turnover ratio:
Choose a period. Some companies prefer quarterly or annual periods because a longer period might provide better insight into their employee behaviour patterns.
Calculate the number of employees who left the organisation, including resigned, retired or dismissed staff.
Calculate your average number of employees. Add the number of active employees at the start and end of the period and divide that figure by half.
Divide the number of employees who left by the average number of employees. This figure is your employee turnover ratio for the chosen period.
Business examples of revenue vs turnover
Below are two business examples of revenue and turnover to aid your understanding:
The following is an example of sales revenue:
Song company is a table manufacturer. The cost of producing each table is $20, and each of them is sold for $100. Song company sold 10,000 tables but reported 25 defective tables returned during the year.
The gross revenue for the year is $1 million ($100 multiplied by 10,000 tables sold). The total cost of goods sold is $200,000 ($20 multiplied by 10,000 tables sold). The total value of returns is $500 ($20 multiplied by 25 tables returned). Therefore, the net revenue for the year is $799,500 ($1 million minus $200,500 in expenses and returns).
Knowing the total earned revenue can help Song company's management see if they achieved their targets for the year. Looking at net revenue also shows areas they can improve. In this case, they can focus on cutting down manufacturing defects to help reduce expenses, thereby increasing income.
Below is an example of inventory turnover:
Berlit's company reported $1 million in sales and $200,000 in cost of goods sold for the same year. Its average inventory is $20,000, and its inventory turnover is 50 ($1 million divided by $20,000).
This means that Berlit's company turned over its inventory 50 times within the year. Dividing 365 days by the inventory turnover shows that Berlit's company takes roughly 7.3 days (365 divided by 50) to sell or turn over its inventory.
This figure can help the purchasing manager plan when to restock inventory to meet customer demand. While Berlit's company's inventory may be idle if the inventory turnover is too high, the manager can write it off as stock obsolescence if it remains unsold.
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