Obviously, this knowledge is powerful, as you can implement discount promos, for example, when the sales are low, or you could embrace a more compelling advertising campaign. On a different note, as you collect valuable data from multiple years, you can pinpoint specific trends that display slow and spike periods. In other words, you won’t have to deal with the many problems linked to over-ordering.Ĭoncurrently, this metric is important for anticipating common revenue trends and returns that apply to your business’ activity. Expressly, knowing your turnover rates allow you to better organize your inventory and order processes so that your company has a steady stream of product. Moving on to the reasons why you should consider calculating the sales turnover on a regular basis, there are several aspects worth noting. However, bear in mind that the sales turnover is relative to the inventory you’ve purchased or the one that remained in your facility. Nonetheless, in the case in which your 100 units of product lasts two months to sell out, then, the turnover percent would be of 50 percent. Considering that you order 100 units of product and, within a month, you sell the entire inventory, this would mean that your sales turnover ratio is of 100 percent. This metric refers exclusively to the revenue obtained through sales so that the company can have a realistic viewpoint of where it stands.Īs with most metrics, the calculating formula is pretty straightforward. It’s worth mentioning that the sales turnover ratio excludes revenue that could derive from other sources such as interest income, gains obtained through the sale of specific assets, or even the receipts from insurance claims. If the situation asks for it, you might choose to break down the measurement by geographic region, units sold, subsidiary, and so on. However, in general, most firms calculate the sales turnover ratio for a month or a year.Ĭoncurrently, the revenue used for this calculation includes cash sales and credit sales alike. This allows them to pinpoint significant changes in activity levels – if any. Essentially, this ratio is genuinely useful for all types of businesses, allowing them to track sales trends through numerous measurement periods. To start with, sales turnover accounts for the total revenue a business generates during a given timeframe.
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