Understanding Sales Turnover and How to Increase It
Understanding sales turnover is vital for businesses seeking a truly comprehensive financial evaluation. Despite this fact, many companies and sales teams have little to no grasp on sales turnover and how it pertains to success and growth.
The star metric of any business, revenue is widely regarded as a valuable way to analyze performance and track growth. On the other hand, many businesses fail to recognize how much insight they can gain by evaluating sales turnover. As a result, many teams are entirely missing a valuable source of data and insight into the health of their business.
For a well-rounded productivity assessment, delve into the basics of sales turnover, and some optimal strategies for implementing sales turnover analysis in your workplace.
What Is Sales Turnover?
Sales turnover definitions vary, but it generally refers to an accounting technique for measuring the efficiency of business operations. The most common method for evaluating sales turnover involves the total amount of products or services sold over a given time period, typically an accounting year.
Sales Turnover Is Not Revenue
Popular misconceptions about the relationship between sales turnover and revenue lead some organizations to neglect sales turnover analysis. Revenue and sales turnover are related since both serve as vital indicators of success and growth. But these two metrics utilize different aspects of business operations.
Revenue is the top-line income that normal business operations generate over a year. The formula for calculating revenue can range from straightforward to highly complex depending on the size and scale of the business in question. But most simply, revenue breaks down into:
- [Number of Units Sold] x [Average Unit Price]
- [Number of Customers] x [Average Price of Services]
Revenue can also represent sales or income and serves as the basis of a business’ income statement. Determining net income (a.k.a. profit) is the result of deducting all business and operational costs from revenue. So while revenue is related to sales turnover, what differentiates the two metrics is revenue’s emphasis on the monetary result of goods and services sold.
Sales turnover is the total amount of goods or services sold over a period of time. Rather than measuring income generated by sales, sales turnover analyzes the speed and efficiency of business operations.
Though sales turnover deserves its own full assessment, sales turnover metrics do correlate with revenue. Companies that turn over their inventory quickly can expect higher revenue, and those with slower-moving goods or services may see a correlating revenue slump.
Poor sales turnover can also indicate substandard productivity or undiagnosed bottle-necks in a company's sales strategy. Sales turnover formulas are an important step to identifying and resolving those sales productivity problems:
Sales Turnover Calculation Formulas. Calculate sales turnover by dividing the cost of goods sold by the average inventory:
[Cost of Goods Sold] / [Average Inventory] = Sales Turnover
Cost of Goods Sold (COGS) Formula. To determine Cost of Goods Sold (COGS), add starting inventory costs to extra inventory costs and subtract ending inventory:
[Starting Inventory + Extra Inventory Costs] - [Ending Inventory] = COGS
Average Inventory Formula. Find average inventory by adding beginning inventory to ending inventory and dividing by two:
[Beginning Inventory + Ending Inventory] / 2 = Average Inventory
How to Increase Sales Turnover
There is an array of viable techniques to increase turnover. If your organization is in the early stages of considering or implementing sales turnover assessment in financial evaluations, consider these strategies:
1. Ignite Your Customer Base. Pursue effective and engaging communication with previous clients. Gain a thorough understanding of their needs, desires, and pain points to increase sales turnover via targeted strategies and campaigns.
2. Analyze Purchasing Patterns. Analyze order frequency and volume data, as well as the current and projected lifetime value of clients and customers. Identifying valuable repeat business streams informs concentrated efforts and resources to grow and maintain these relationships. After all, increasing customer retention by just 5% can yield a 25-95% gain in profits.
3. Hire the Right Salespeople. Every business relies on a highly motivated and effective sales force to generate sales turnover and drive profits. Unfortunately, identifying, hiring, and retaining skilled salespeople has been a consistent challenge for businesses across industries.
This is where recent advancements in data-mining and algorithmic forecasting come in. PerceptionPredict offers predictive analytics tools that grant unmatched insight into the skills, motivations, and relevant qualities of qualified applicants to help project metrics like average yearly ROI, length of tenure, and more.4. Make Customer Service a Priority. Soft skills are as important to a company’s repeat business and reputation as a quality offering. So for an outsized improvement in sales turnover, invest in revamping customer service policies and practices. Customer-facing employees that are well-versed in best practices can drive high customer satisfaction and develop repeat business to dependably boost sales turnover.
Increase Sales Turnover With Us Today
PerceptionPredict modernizes the sales team-building process by harnessing cutting-edge technology designed by industry-leading data scientists, psychology professionals, and industry consultants.
Research-backed performance and human attribute data constructs the computational models behind PerceptionPredict. Our decision support platform creates data-driven forecasts of a team member’s expected performance across a plethora of key performance indicators.
For international business leaders like Mercedes-Benz and Crowdstrike, our predictive analytics have been instrumental in building world-class sales teams, reducing costly turnover, and increasing overall productivity.
Book a Demo today to learn how PerceptionPredict can supercharge your sales team with an innovative hiring process.