What is turnover in business and how do you calculate it?

Understanding how well your business is doing might not be an exact science, but business turnover is one of the markers you can use to get a good idea.

But while business turnover is a useful measure of success, it’s often confused with profit. So how do you work it out? This article explains what business turnover is and guides you through calculating it.

• What is business turnover?
• Turnover vs revenue – are they the same?
• Gross vs net turnover
• How to calculate business turnover
• How to record turnover in 7 steps
• Turnover vs profit – what are the key differences?
• Why is turnover important?
• How late payments impact turnover
• Are there other types of turnover in business?
• Turnover in business FAQs

What is business turnover?

Turnover is the revenue made by a business in a certain period. It’s sometimes referred to as ‘gross revenue’ or ‘income’.

It’s an important measure of your business’s performance. Knowing your turnover figure is useful throughout the whole life of your business – from planning and securing investment, through measuring performance, to valuing your company if you plan to sell.

Turnover in business is not the same as profit, though some people confuse the two. Turnover is your total business income over a set period of time. Profit, on the other hand, refers to your earnings that are left after expenses have been deducted.

Turnover vs revenue – are they the same?

When running a business, it’s likely you’ll come across the terms turnover and revenue. It’s important to know that, especially in the UK, the phrases are used interchangeably.

There’s no difference in the way turnover and revenue are calculated – they both represent the gross income made from sales before expenses.

Gross vs net turnover

You may also come across the terms ‘gross turnover’ and ‘net turnover’.

Gross turnover refers to the total revenue from sales before any deductions (such as tax).

Whereas net turnover is the total revenue from sales after deductions (such as VAT or discounts). 

How to calculate turnover for your business

If you’re keeping accurate records (which you need to do for tax purposes), it should be fairly quick to add together your total sales. Remember that turnover is measured over a specific period, for example a tax year.

to work out gross profit, deduct the cost of your sales from your turnover

to work out net profit, take your gross profit and deduct all other expenses – not forgetting your tax liabilities

Here’s an example calculation.

	Amount
Turnover	£50,000
– Cost of goods sold (COGS)	£20,000
= Gross profit	£30,000
– Operating expenses	£15,000
= Net profit	£15,000

How to record turnover in 7 steps

Calculating your turnover is easy if you keep a record of all your sales (whether you sell products or a service).

If you don’t have accurate records, your turnover figure won’t be correct and you could have a false sense of your business’s health.

Here’s a step-by-step guide to recording turnover:

• Choose an accounting period –  are you looking to track your revenue over a month, a quarter, or a year?
• Identify revenue sources  – as well as sales of your product or service, do you make money in any other ways, such as rental income?
• Collate financial records – to record your turnover, you’ll need access to invoices, receipts, and bank statements
• Choose your recording method – will you use a spreadsheet, accounting software, or a manual ledger?
• Record transactions – as well as the value of each transaction, you’ll need to record the date and description of what was sold
• Calculate turnover – add up all of the gross transactions for the period. You can do this automatically if you use accounting software or a spreadsheet
• Consider VAT – if you’re VAT-registered, you may need to separate VAT from your gross turnover figure

If you’re considering doing your own accounting, read our guide to the best accounting software for small businesses. However, you may find it easier to hire an accountant.

Turnover vs profit – what are the key differences?

Turnover is often confused with profit, so it’s important for business owners to understand the difference.

As a reminder, turnover is the total revenue made from sales before any deductions. On the other hand, profit is the money you’ve made after deducting your costs and expenses. 

Once you’ve got to grips with the difference between turnover and profit, it can be useful to understand the two main types of profit. 

Gross profit is the amount you make after deducting the direct cost of providing the product or service. Net profit is what’s leftover after you deduct other expenses such as salaries, rent, and taxes.

Why is turnover important?

Having a solid understanding of your business turnover can give you a better idea of your potential for growth. Here’s an overview of how you can use it:

• comparing turnover year-on-year shows if your sales are increasing 
• setting a turnover target can help you to reach your profit target 
• if you’re seeking investment or funding, it’s likely you’ll need to share your annual turnover 

You can also do a break even analysis to work out when you can expect to make a profit.

Knowing your turnover is fundamental to understanding the health of your business, but it’s not the sole measure of success. Profitability and efficiency are two other important things to consider.

Another practical use of business turnover is registering for VAT. 

If your business has an annual turnover above £90,000, then it’s a legal requirement to register for VAT.

Businesses that register for VAT need to:

• pay and charge VAT
• submit VAT returns
• follow Making Tax Digital
• keep accurate records

You may also need to include your annual turnover on tax returns or when buying business insurance. 

How late payments impact turnover

Late payments from customers can have a negative impact on the turnover of a small business. 

Firstly, late payments can reduce your cash flow – this means you have less money to spend on day-to-day operations as well as expansion opportunities. 

A reduced turnover caused by late payments could also limit any investment or funding you’re looking for. 

Unfortunately, late payments are a problem for almost two thirds (64 per cent) of businesses. Our 2023 SME Insights Report found that 35 per cent of businesses were owed between £5,000 and £20,000 in late payments at the time of the survey.

Are there other types of turnover in business?

There are also a few other potential definitions of turnover that don’t refer directly to your finances: 

• inventory turnover – how quickly a company sells and replaces its stock (a measure of operational efficiency)
• employee turnover – the rate at which employees leave and are replaced in a business (also known as staff turnover or employee churn rate)
• accounts receivable turnover – how efficiently your business collects payments from customers who have paid on credit
• portfolio turnover – the rate at which a company replaces its assets or holdings over a specific period
• asset turnover – a financial ratio that measures how efficiently a company uses its assets to generate sales revenue

Turnover in business FAQs

What does turnover mean in business?

Turnover in business is the total amount of revenue you generate from sales over a period of time.

Is turnover the same as profit?  

Turnover isn’t the same as profit. Turnover is the total amount of money you make from sales, whereas profit is the amount of money you make after expenses.

How do I calculate my turnover?

To calculate your turnover, you need to add together your total sales over a specific period (such as a month, quarter, or year).

Is turnover before or after tax?

Turnover is generally measured before tax, which is considered to be an expense. If you measure turnover after tax, this is likely to be an indicator of your profit.

Guides for small business owners

• What to do when a client doesn’t pay: tips for getting paid
• How to write an invoice – free invoice template (UK)
• Small business tax changes: new thresholds, rates, and allowances
• What type of business insurance do I need?