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Revenue and Turnover: Meaning & Differences

  • Vrinda Mathur
  • Mar 11, 2022
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Many individuals in business use the phrases turnover and revenue interchangeably to refer to the same thing, even if they don't always imply the same thing. This begs the question, "Is turnover synonymous with revenue?"

 

The answer is no, although they do typically coincide. Businesses, for example, might increase income by passing over goods on a regular basis. Assets and inventory turnover occur after passing through the firm, either through sales or outliving their useful lives. 

 

On the other side, if the assets being turned over produce sales revenue, they create money. Employee turnover, for example, is an example of a commercial activity that does not create sales revenue.

 

Also Read | Revenue Deficit


 

What is Revenue?

 

Revenue is the amount of money earned by a company from its normal business operations, which are often the sales of goods and services to customers. Turnover or sales are also discussed and referred to as revenue. A few businesses get money via royalties, other fees, or interest.

 

A firm believes that by establishing a cost price less than or equal to the market cost price, it will be able to sell as many quantities of the product as it needed. 

 

In such a circumstance, it makes no sense to set a cost price that is lower than the market cost price. In other words, the firm should sell enough of the commodity to ensure that the cost price it establishes is exactly identical to the market cost price.

 

Types of Revenue 

 

Types of Revenue are:-

 

  1. Total Revenue

 

 Is the total amount of money a vendor may make by selling goods or services to clients. It may be expressed as P Q, which is the cost price of the goods multiplied by the quantity sold. As a result, an enterprise's Total Revenue  (TR) is defined as the market cost price of the commodity (p) multiplied by the enterprise's output (q).

 

  1. Average Revenue

 

The income generated per unit of product sold is referred to as the average revenue. It is critical in determining an enterprise's profit. Profit per unit is calculated by dividing the average (total) cost by the average revenue. A business normally seeks to produce as much production as possible in order to maximize profits.

 

  1. Marginal Revenue

 

Marginal revenue is defined as the revenue earned from the sale of additional products. It is the money gained by an organization from the sale of an additional unit. It is utilized by management in analyzing client requests, organizing product schedules and determine product prices 

 

Marginal revenue remains constant until a specific level of output is reached, and then slows down due to the law of diminishing returns.

 

Also Read | Law of Diminishing Marginal Returns

 

 

What is Turnover?

 

Turnover is an accounting term that measures how rapidly a company runs its activities. Most commonly, turnover is used to determine how quickly a firm gets cash from accounts receivable or sells inventory.

 

Turnover is defined in the investing business as the proportion of a portfolio that is sold in a given month or year. A high turnover rate results in higher commissions for trades placed by a broker.

 

Accounts receivable and inventory are two of a company's most valuable assets. Both of these accounts need a significant financial outlay, and it is critical to track how rapidly a company gets cash.

 

Turnover Ratio measures how quickly a company gets cash from its receivable and inventory investments. Fundamental analysts and investors use these numbers to judge if a firm is a worthwhile investment.

 

From assessing performance to attracting funding and appraising for a sale, life has you covered. Assets and inventories 'turn over' when they pass through your company, whether through sale, waste, or outliving their useful life.

 

The term turnover can also apply to commercial activity that does not always result in sales. Staff turnover, accounts receivable turnover, and portfolio turnover, for example, all measure movement in and out of certain sectors.

 

Also Read | Commodity Trading


 

Difference between Revenue and Turnover

 

We’ve differentiated between Revenue and Turnover on the basis of 4 factors :


Factors distinguishing Revenue from Turnover:-1. Meaning2. Importance and effect on business 3. Main types of Revenue and Turnover 4. Reporting Revenue and Turnover

Factors distinguishing Revenue from Turnover


  1. Meaning

 

The first distinction is between the two words' definitions and meanings, which are outlined below:

 

Turnover - This is the number of times a firm or organization burns through assets such as inventory, cash, and people (workers). Turnover defines an enterprise's efficacy and efficiency in managing resources, and it helps organizations to track their cycle of purchases, sales, and inventory re-orders.

 

Revenue - This is the amount of money earned by a business or firm from the sale of goods or services. Donations, subscriptions, and membership fees are examples of revenue for non-profit organizations. 

 

Non-operating activity proceeds, such as interest, commissions, or dividends earned, or the sale of investments, fixed assets, and scrap material, are also considered income.

 

  1. Importance and Effect on Business

 

Turnover and revenue are both important for businesses and organizations since they assess and signal success during the fiscal year.

 

Turnover rate - Businesses may use turnover rate to measure their efficiency in managing corporate resources, which is useful for planning and regulating output levels.

 

Revenue  - This is important for a firm since it helps management determine the company's strength, size, client base, and market share. Furthermore, greater sales suggest consistency, demonstrate corporate confidence, and make it simpler to acquire credit or get loans.

 

  1. Main Types of Turnover and Revenue

 

As mentioned below, there are Three types of turnover and two sources of Revenue:

 

Types of Turnover

 

  • Inventory Turnover- This is a financial ratio that illustrates how many times a firm or organization has sold and replaced inventory in a specific period of time, such as a year.

 

  • Cash Turnover - This is the number of times a firm or business spends its money within the reporting period.

 

  • Labor Turnover- This is defined as the ratio of employees who left the firm to those who remained on the payroll over a specific time period. Employees may depart owing to attrition, resignation, or termination

 

Sources of Revenue 

 

  • Operating Revenue - This is the revenue generated by a company or organization's regular business operations.

 

  • Non-operating revenue - This is the revenue earned by a corporation from sources other than operations, such as dividends or rent.

 

  1. Reporting Turnover and Revenue

 

In their financial statements, businesses report both turnover and revenue. However, reporting turnover is not required.

 

Making a note of turnover in your financial statements: It is not required to record turnover. Instead, a company may use the ratios to measure its production efficiency and gain a better understanding of the financial accounts.

 

Revenue must be recorded on your financial accounts: Businesses must record revenue on their financial statements. It appears as the first line item on the income statement.

 

Also Read | Income Distribution

 

 

Why understand the difference between Revenue and Turnover?

 

It is critical to understand the distinctions and overlaps between turnover and revenue for the following reasons:

 

  1. Financial reporting

 

Understanding and calculating revenue is critical because it helps businesses estimate their growth and sustainability. It is also a performance statistic used to compare the current fiscal year to prior ones.

 

  1. Making plans for future Business Activity

 

Knowing the overall income collected for the year enables businesses to prepare for and allocate funds for the following fiscal quarter. 

 

Understanding turnover, on the other hand, helps businesses to control their production levels and guarantee that there is no idle inventory for lengthy periods of time. It also aids in resource allocation and planning to increase efficiency.

 

  1. Shareholder reporting

 

Revenues must be reported in the income statement, which is available to shareholders. Furthermore, calculating turnover ratios and putting them in financial statements assists shareholders in better understanding them.
 

Also Read | All about Ratio Analysis 

 

 

Conclusion

 

Revenue is the money a company earns by selling its products and services, whereas turnover is the number of times a company creates or burns through assets. 

 

Thus, revenue has an impact on a company's profitability, but turnover has an impact on its efficiency. Other distinctions include the impact of the two on the company, the different forms of turnover and revenue, the calculation techniques, and reporting.

 

The distinctions between turnover and income are numerous and complex, yet they are critical for companies to exist. All businesses want to enhance and maximize their income, and comparing year-to-year performance helps assess growth and progress.

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