How do calculate turnover

In a business context, the definition of turnover can also refer to the turnover of staff, which is the number of employees that leave the business, or the turnover of inventory or assets, which means that they are either sold, thrown away or outlive their usable life. By analysing turnover for a specific period, you can compare your current turnover to other times in the year or over a number of years. This shows whether your business turnover is growing and if it matches your targets. When you compare turnover alongside profit, it could also show you if you need to assess areas of the business where you could save money, such as the cost of your goods to sell or the cost of your business operations or expenses.

If turnover is referred to as gross revenue, then profit is referred to as net revenue. This is because your income is all of your sales, but your earnings will have deductions. These deductions could be a number of things such as sales minus the cost of the goods or services sold gross profit or sales minus expenses, such as tax and administration net profit.

Calculating your turnover should be super easy as long as you have kept an accurate record of your sales. If you sell services, such as consulting or labour, your turnover will be the total that you have charged for these services.

In this example, your gross profit is the same as last year, but your net profit is lower. This could be an indication that your operating costs have increased. To reduce them, you could look at doing an audit of your administration costs or check that there are no mistakes on your tax.

If your gross profit was lower, this is an indication that you need to cut down on the costs of goods sold. For this, you could talk to your supplier about a discount, searching for a cheaper product or searching for a cheaper supplier.

If you get stuck, our friendly team are ready to help via web chat, phone or email. This means that the formula must render a meaningful calculation at the individual level as well. Take this example of a single employee quitting. The time period selected is a 2-month period.

This will be impossible to explain to a business partner or line manager. In addition, we report on both our existing population and on our recruits. This is another argument to separate Employees from Hires, as both have their dedicated dashboard.

Employee turnover rate is the rate at which employees leave the organization. Turnover can be voluntary initiated by the employee and involuntary representing firing, layoff, or expiration of the employment agreement. In general, there is no such thing as a good turnover rate. This depends on your industry and the kind of jobs you offer.

To calculate turnover rate, we divide the number of terminates during a specific period by the number of employees at the beginning of that period. To calculate turnover rate, we divide the number of terminates during the year by the number of employees at the beginning of that period.

Because of the differences in both approaches, I approached John Lipinski. John holds a Ph. He is the founder of the HRanalytics website which publishes content about the more technical parts of measurements and analytics. John was kind enough to give feedback on this piece and added his view on calculating the employee turnover rate. When it comes to the example above — assuming no new hires — I think the other approach measure would take the average of the people at the start and at the end 70 for a denominator of That might seem wrong but remember that in January you lost 10 people when you started with By March though you lost another 10 when you were only starting the month with 80 so in one measure your turnover is getting worse… You are losing the same absolute amount of people even though your starting pool is smaller.

The other given example is one that clarifies the issue at play, but it overlooks another possible problem, namely that at some point in the month you had no employee. On any given day in that month then, on average, you had less than 1 employee working.

From another perspective, though, it makes sense: you lost 1 person but on average, throughout the month you had less than one employee working they only worked part of that month. If you have high turnover, then you could be hiring more people with continuous quitting and more hiring, etc.

At the end the year you have about the same number of employees but you had many more start, work for a while, and then leave. For what it is worth, you can see some related issues pop up in customer churn metrics and in inventory turnover too. Overall, I think there is value in doing something like Retention for a given set at the beginning of a period and then also treating the new hires differently.

That decision would seem arbitrary and might just be pushing the issue to another place. Special thanks to Lyndon Sundmark for providing much of the input for this article and to John Lipinski for challenging our ideas and helping us create a better result. Future-proof your career in HR by continuously expanding your skill set with the latest and most relevant HR skills. Erik van Vulpen is an expert in shaping modern HR practices by bringing technological innovations into the HR context.

Which has since become the 1 leader in online training courses for HR professionals across the globe. At first this formula sounds pretty simple, but deciding which data to include and when can be confusing. For example, does an organization use full-time equivalent FTE or straight head count when determining the number of employees and separations?

What about temporary workers? What if an employee is on a leave or furlough? This guide breaks down each aspect of the formula and explains best practices. When determining the number of employees in organizations for turnover rate purposes, employee head count rather than FTE is used.

This head count should include all employees on the payroll. Employers should also count direct-hire temporary workers temporary workers who are on the company payroll and employees on temporary layoff, leave of absence or furlough. The human resource information system HRIS or payroll system should be set up to report total employee head count as explained above, and employers should run this report at regular intervals within the month weekly or at the beginning, middle and end of each month.

The employee head count can vary depending on the day or week, so the more data points used, the more accurate the turnover calculation will be. The next step is to add the total head count from each report run throughout the month together, and then to divide by the number of reports used to obtain the average number of employees on payroll that month.

Company A runs head count reports three times a month at the beginning, middle and end of each month. Head count on January 1 is employees. Head count on January 15 is employees. Head count on January 30 is employees. Using the formula above, Company A would add the three head count totals , and together and then divide this sum by number of reports 3.

The next step is to obtain a list of the individuals with termination dates within the month. The number of separations during a month includes both voluntary and involuntary terminations, but employees who are temporarily laid off, on furloughs or on a leave of absence are not included. The HRIS or payroll system should easily generate an employee list by termination date. Only three employees should be included in the number of separations for the month: the one employee who retired and the two employees terminated for cause.

As stated above, only voluntary and involuntary separations within the month are counted; this does not include leaves of absence or furloughs. Also, Company A would not track agency temporary workers because they are not on the payroll. The next step is to divide the number of separations in the month determined in Step 3 by the average number of employees on the payroll in the month determined in Step 2. Company A had three separations and an average of