In the business world, turnover is a term often used to describe a company’s revenue. However, many people still confuse turnover with profit. While the two are related, they have different meanings.
If you’re a business owner or just starting a business, understanding the difference between turnover and profit is crucial. Misunderstanding these two terms can lead to inaccurate calculations. Let’s learn more!
What is Turnover?
Turnover is the total revenue earned from the sale of goods or services during a specific period, before deducting operating expenses. Simply put, turnover can be described as a company’s gross income.
Simply put, if you own a culinary business and sell 1,000 portions of food at Rp20,000 per portion in one month, your turnover would be Rp20,000,000. However, this figure doesn’t reflect your actual profit, as there are still various costs involved.
What is Profit?
Sementara itu, profit adalah keuntungan bersih yang didapatkan setelah dikurangi dengan semua biaya operasional, seperti bahan baku, sewa tempat, gaji karyawan, hingga pajak. Profit inilah yang sebenarnya menunjukkan seberapa menguntungkan bisnis yang kamu jalankan.
For example, of your Rp20,000,000 in revenue, you spent Rp12,000,000 on operational costs. Your net profit is Rp8,000,000, subtracting operational costs from your revenue.
So, it can be concluded that turnover is an aspect that is not the main indicator of business success, but profit is.
Also read: 10 Ways to Increase Sales to Get Big Turnover
Difference between Turnover and Profit
From the explanations above, it’s clear that turnover is distinct from profit. However, the two are actually interrelated in business. Here are some key differences between turnover and profit:
1. Definition
As explained previously, turnover is the total amount of money received from sales before deducting costs. Profit, on the other hand, is the amount of money remaining after all expenses, including operating costs. This means that turnover is the starting point, while profit is the final result.
2. Number or Amount
A business can achieve significant revenue, but if operational and production costs are also high, profits can be very low. This often occurs when entrepreneurs focus on increasing revenue without controlling expenses. Therefore, a good business strategy must consider cost efficiency to maintain optimal profits.
3. Turnover Does Not Guarantee Business Sustainability
High turnover doesn’t always guarantee long-term business success. If financial management isn’t sound, a company can still incur losses even with high turnover. Conversely, a business with healthy profits has a greater chance of growth and long-term sustainability.
How to Increase Profits Without Increasing Turnover
Many entrepreneurs think the only way to increase profits is to increase turnover. However, there are several strategies that can be implemented to boost profits without significantly increasing turnover:
1. Operational Cost Efficiency
Cutting costs is one of the best ways to increase profits without increasing turnover. You can find cheaper raw material suppliers without sacrificing product quality. Furthermore, optimizing the use of existing resources can reduce waste and improve operational efficiency.
Also read: Inventory Management: The Right Way to Manage Stock
2. Increase Selling Price with Added Value
Raising prices can be an effective strategy if combined with increased added value to the product or service. Emphasize product uniqueness, provide better service, and add exclusive features. This way, customers will feel they’re getting more value and remain willing to pay a higher price.
3. Focus on the Most Profitable Products or Services
Analyzing which products or services offer the highest profit margins is a smart business move. By focusing on high-profit products, you can allocate resources and marketing strategies more effectively. This will help increase business profitability without having to drastically increase sales volume.
Tips for Managing Turnover and Profit in Business
For optimal business growth, it’s crucial to not only focus on turnover but also calculate the profit earned. Understanding these two concepts will help you manage your business resources more wisely. Here are some tips you can follow:
1. Monitor Financial Reports Regularly
Regularly reviewing financial reports can help you track your revenue and profit growth. With careful monitoring, you can detect financial problems early and take appropriate action.
2. Increase Efficiency
Improving operational efficiency can reduce costs without compromising quality. Try to find new ways of working that are faster and more efficient, whether in production, marketing, or distribution.
3. Make a Mature Financial Plan
With good financial planning, you can manage your capital more efficiently. A realistic budget will help reduce waste and ensure every expense contributes to greater profits.
So, turnover is the gross income a company earns. While a large turnover may seem appealing, you also need to manage your operating costs effectively to increase your profits.
A business’s success isn’t solely measured by high turnover, but also by its ability to generate net profit. Understanding these two concepts allows a business to grow sustainably and be better managed.
To simplify business management, use a cashier app that automatically and accurately records transactions. One solution is Labamu, which offers a comprehensive and easy-to-use financial recording system. Let’s manage your business smarter with Labamu!
