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Sales turnover measures the frequency and quantity of a company’s finished products sold in a given period. High turnover rates reduce taxes and warehouse costs, while low rates indicate the need for changes. Historical revenue can help companies adjust production to balance sales turnover.
Sometimes referred to as an inventory turnover or inventory turnover, a sales turnover is a measurement of the frequency and quantity of a company’s finished products sold in a given period of time. Companies can evaluate sales revenue on a monthly, quarterly or even annual basis, depending on the nature of the products sold and the operating structure of the business. Determining sales revenue for a period or even a succession of periods can help a company make adjustments in production that help prevent large inventories of finished goods from sitting in warehouses, or help the company regulate production so that there are enough hand finished products to meet consumer demand in the coming periods.
With turnover, the ultimate goal of any business is to achieve a high turnover rate. When turnover is high, this means that a significant percentage of the finished products on hand are sold quickly, rather than languishing in storage for an extended period of time. The benefits of high sales turnover include a reduction in the tax owed on finished goods stored and, possibly, a reduction in the amount of warehouse space that must be rented to house those goods between production and sale. At the same time, high turnover also means that the resources invested in manufacturing the products generate a faster return from customer sales, allowing the company to enjoy a more desirable level of cash flow.
Conversely, low sales turnover is often a sign that the business needs to make some changes. Low turnovers indicate that sales to consumers are out of balance with the production rate, resulting in higher inventories of finished products. This results in higher taxes on finished product volume, higher storage fees to house products until they sell, and a longer period to generate revenue from the resources used to create the finished products. When low turnover is present, the company will look for ways to promote further sales, including taking steps to reduce production to some extent, at least until the glut of finished goods is reduced to a reasonable level.
Because sales can fluctuate in volume from one period to another, companies can track historical revenue as a means to project what will happen in future periods and adjust production accordingly. For example, if a company typically experiences a sales slump during the third quarter, begins its recovery during the fourth quarter, and then sees a dramatic increase in demand during the first quarter of the following year, production schedules can be adjusted to match the trend and help keep the sales turnover a little bit more balanced quarter to quarter.
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