Sales turnover – What is sales turnover?
Sales turnover is the company's total amount of products or services sold over a given period of time - typically an accounting year.
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Sales turnover represents the value of total sales provided to customers during a specified time period, which is usually one year. The amount includes only revenue that is generated from daily operations, not non-operating revenue.
The term is often just referred to as sales or net sales, which means revenues without VAT. Sales turnover is usually expressed in monetary terms but can also be in total units of stock or products sold.
The figure for sales turnover in the profit & loss statement doesn’t necessarily mean that the firm has received all of that amount. This is because although they may have sold that quantity and value of the product, they may still be owed some of the money by their debtors.
For example, if Kim’s sales over the course of the year amount to £33,000, she would divide this by 12 (if calculating on an annual basis) to determine her monthly turnover. She could then break this down to weekly, and even daily.
33,000 / 12 = 2,750
Therefore, the figure for sales turnover in the P&L report represents the total amount of their product or service sold, not the actual amount of money they’ve received.
The sales turnover can also be approached based on the number of products sold. This can be determined by dividing the sales amount by the product stock sold. In other words, it’s the cost of goods sold divided by the average price of your products.
For Example, if Kim sold £33,000 worth of her beauty products in 12 months, and the average price of her products is £8, then her turnover rate for the year would be 4,125 (33,000 / 8). She could then further break this down by dividing it by 12 to determine the monthly rate, by 52 for the weekly, etc.
Turnover minus direct costs is called ‘gross profit’. The resulting gross profit should then be used to cover all operating expenses before any net profit can be calculated.
Calculating the net and gross profits for a business are useful for understanding the current financial state of the company.
For example, if the gross profits don’t cover the costs, this likely indicates that changes need to be made in operations. Or, it can show the progress of a new business from one year to the next (a smaller gap between expenses and sales, breaking even, then profit).
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