Turnover: What is it?

Definition

In business and finance, “turnover” encompasses both employee turnover and financial turnover. Both concepts are crucial for understanding and managing different aspects of business performance.

What is a turnover?

Employee turnover, refers to the rate at which employees leave a company and are replaced by new hires. It is a critical metric for businesses to monitor as it impacts productivity, morale, and performance. There are two main types of employee turnover:

Voluntary turnover: This occurs when employees choose to leave the organisation, often for reasons like better job opportunities, career advancement, dissatisfaction with current roles, or personal reasons.
Involuntary turnover: This happens when employees are terminated or laid off by the employer, typically due to performance issues, restructuring, or downsising.

Managing employee turnover is important for organisations to maintain a stable and motivated workforce. High turnover rates can be costly in terms of recruitment, training, and lost productivity.

Financial turnover, also known as “business turnover,” refers to the total value of sales made by a company within a specific period. It is a key indicator of a company’s performance and is used to assess its turnover-generating capabilities.

Financial turnover is an essential metric for evaluating a company’s sales performance, market presence, and overall business health. It is often used in financial analysis, benchmarking, and comparing the performance of different companies or industries.

Example of a turnover

ABC Company, a retail chain, has 50 employees at the beginning of the year. Over the course of the year, 10 employees resign or are terminated, and ABC Company hires 15 new employees to replace them.

To calculate the employee turnover rate for ABC Company:

Calculate the average number of employees: Average number of employees = (50 + 40) / 2 = 45
Calculate the employee turnover rate: Employee Turnover Rate = (10 / 45) x 100% = 22.22%

In this example, ABC Company’s employee turnover rate is 22.22%. This means that, on average, 22.22% of the workforce was replaced during the year.