“Turnover” can refer to several different concepts depending on the context, but in general, it denotes the act of replacing or the amount of replacement of something. Here are some of the most common uses of the term:
- Business Finance: In this context, turnover refers to the sales generated by a business over a set period, usually a fiscal year. It is the top line or gross income figure from which costs are subtracted to determine net income.
- Asset Management: Here, turnover refers to the selling and replacing of assets in a portfolio. A high turnover rate could mean that the portfolio’s securities are traded frequently, which might result in higher transaction costs.
- Employee Management: In human resources, turnover refers to the rate at which employees leave an organization and are replaced by new employees. A high employee turnover rate can be problematic for businesses because recruiting and training new employees is costly.
- Inventory Management: Turnover in this context refers to how many times a company’s inventory is sold and replaced over a period. A higher inventory turnover rate indicates that a company sells its products quickly, which can be a sign of strong sales or effective inventory management.
- Retail: In a retail setting, turnover might refer to how quickly products are sold and need to be restocked.
In each context, the specific meaning of turnover carries implications for management, strategy, and evaluation of performance. When the term “turnover” is used, understanding the context is crucial to grasp its specific meaning.
Example of Turnover
Let’s illustrate the concept of “turnover” with an example related to employee management, as it’s a commonly encountered issue in many businesses:
Employee Turnover at “TechSolutions” Company
“TechSolutions” is a rapidly growing tech company with 100 employees at the beginning of the year. By the end of the year, 20 of those original 100 employees have left the company for various reasons (e.g., better job opportunities, dissatisfaction, retirement). Over the same year, “TechSolutions” hired 25 new employees, some to replace those who left and some because of company growth.
To calculate the employee turnover rate for the year, we’d use the following formula:
Turnover Rate = Number of Employees Who Left During the Period / Average Number of Employees During the Period × 100
- Number of employees at the start = 100
- Number of employees at the end = 105 (since 20 left and 25 were hired)
- Average number of employees during the period = (100 + 105) / 2 = 102.5
- Number of employees who left = 20
Plugging the values into the formula:
Turnover Rate = 20 / 102.5 × 100 = 19.51%
So, the employee turnover rate at “TechSolutions” for the year is 19.51%.
This means that almost 20% of the average employee base left the company over the year. Depending on the industry benchmark, this could be viewed as high, low, or typical. A high turnover rate can be alarming because it can indicate employee dissatisfaction or other organizational issues. It’s also expensive for the company due to costs related to hiring, training, and potential loss of knowledge. However, some industries or job roles naturally have a higher turnover due to the nature of the work.