What is Sales Turnover?

Sales turnover is the total amount of revenue generated by a business during the calculation period. The concept is useful for tracking sales levels on a trend line through multiple measurement periods in order to spot meaningful changes in activity levels. The calculation period is usually one year. The revenue included in this calculation is from both cash sales and credit sales. The measurement can also be broken down by units sold, geographic region, subsidiary, and so forth.

What is Not Included in Sales Turnover?

Sales turnover is restricted to revenue generated from operations. Thus, it does not include the following items:

Gains interest income
Gains on the sale of fixed assets
The receipt of payments related to insurance claims.

Example of Sales Turnover

A software company offers subscription-based CRM and analytics tools. Over the last fiscal year, the company experienced strong growth across its product lines. Here is how its total sales turnover is calculated:

Product A (CRM Platform):
- Annual subscription price: $1,200
- Number of active customers: 3,000
- Total revenue: $1,200 × 3,000 = $3,600,000
Product B (Analytics Tool):
- Annual subscription price: $800
- Number of active customers: 2,500
- Total revenue: $800 × 2,500 = $2,000,000
Professional Services (implementation, training):
- Project-based revenue: $400,000

Based on the preceding information, the firm’s total sales turnover is calculated as follows:

CRM revenue: $3,600,000
Analytics revenue: $2,000,000
Professional services revenue: $400,000
Total sales turnover = $6,000,000

In this example, the company’s sales turnover for the year is $6 million, which reflects the total revenue generated from all customer transactions.

The Impact of the Basis of Accounting on Sales Turnover

The amount of sales turnover recognized by a business can vary, depending on whether it uses the accrual basis of accounting or the cash basis. Revenue is recorded under the accrual basis when units are shipped or services provided, whereas revenue is recorded under the cash basis when cash is received from customers (which usually delays recognition, except when there is a prepayment).

Projected Sales Turnover

Projected sales turnover is a forecast of future sales. A company may be tempted to report projected sales turnover based on an extension of historical sales. This is not wise, since revenue may change for a variety of unanticipated reasons, such as competitive pressure and changes in economic conditions.