Turnover is “vanity” profit is “sanity”

I read that saying in a book many years ago and it stuck with me over the years but I am not sure it is entirely true.

The reason for the saying was that many businesses boast about their turnover but make very little if any money.

The author (who I can not remember now) was making the point that it is the profit that the business that counts…Not the turnover.

That aside I still think turnover is an important gauge of how a company is performing but I think as business owners we need to think of three figures together.

Turnover
Costs
Profit.

It’s the one in the middle (Costs) that determines how much profit we make.

There are a lot of things that can make up cost from wages to rent to the costs of materials and stocks.

Some costs will be directly proportional to your turnover others cost could be as a result of helping to increase turnover.

That’s why it is so vital that you keep a firm grip on costs and question and re-evaluate all of them at regular intervals.

It’s so easy to add a new cost to a business without really looking at it’s long term impact.

Taking on staff (which you should always try to do) is a prime example.

There are lots of extra costs that could come about from taking on a new member of staff and you need to be aware of all of them.

Turnover is an important goal for a business and it surprises me how many businesses do not have this as one of their main improvement targets.

I know turnover is consequence of the main five other numbers (Leads, Conversion, sales, Average Order Value and Average number of orders per customer) but it is an important number you can work back from.

So although I agree with the sentiment that boasting about turnover is “Vanity”…

…I think it is even worse is this is not one of the main numbers you record and work to improve.

Just remember that it will be the actual cost of running the business that will determine if you are profitable or not.