What is turnover?
Turnover is the total income your company makes over a certain period.
Calculate your minimal required turnover
Calculate your private cost of living: how much rent or mortgage do you pay, how much do you spend on shopping, holidays and reservations? Add the income tax to this. Income tax can be up to half of your private spending amount. The sum of these amounts will give you the minimum amount of funds you need as income from your company, the so-called operating result. Next, add your company costs to the operating result. For instance, the rent for your business premises and company car costs. This will give you the net required turnover.
If you invoice your hours, you need to earn your required net turnover in billable hours. Billable hours are the hours you can charge to your clients. Remember that you also spend quite a few hours on your business that you can not charge to your client: for instance, on filing your tax return, acquisition, or doing the accounts. Do you buy products or services? Then add the purchase cost and value of these to your net turnover requirement. This will give you the required gross turnover. You charge your client the required turnover, plus the VAT rate that applies to your product or service.
Estimate your turnover
There are several methods to estimate your turnover. The sector you operate in determines which method to choose. If you work on an hourly rate, your calculation method will be different from someone who runs a bar or a shop.
- Customer groups: estimate the number of customers, and multiply by the average amount spent per customer. For example: a lunchroom opens 6 days a week, and closes 4 weeks a year for holidays. On average, there are 30 customers a day. 30 customers a day x an average spend of €15 = €450 a day x 6 days = €2,700 per week x 48 weeks = €129,600 turnover per year.
- Product groups: calculate the turnover share per product group. Multiply the number of products x their sales price. For example: you run a computer store, that opens 6 days a week for 48 weeks a year. On average, you sell 3 laptops per day plus 2 tablets. Your turnover will then be: ((3 x €700) + (2x €400)) x 6 = €17,400 a week, and €17,400 x 48 = €835,200 per year.
- Hours: billable hours are hours you can charge to your client. Multiply the number of billable hours by your hourly rate. For example: You work as an advisor for 8 hours a day and 5 days a week. Per year, you take 30 days off. So, in total you work for 46x5 = 230 days a year. The number of hours per year is 230x8 = 1,840. Deduct from this number the hours you spend on travel, acquisition, and keeping records, say 940 hours. This leaves 900 billable hours. Your turnover will be 900 billable hours times your hourly rate of €100 = €90,000 per year.
How likely are you to realise your required turnover?
Do you realise enough turnover to keep running your business? To calculate this, take the required turnover and compare it to the estimated turnover. For example: you rent out bicycles from Monday to Friday. During the 8 hours you open, you rent out 5 bikes per hour at a rate of €8, so 40 bikes per day for €320. Your monthly turnover will never exceed €6,400. But you have calculated that you need €7,000 turnover per month to cover your private and business needs. So, you fall €600 short in this example. You could try to increase the number of bicycles you rent out, or increase the prices to meet your target.
Tips for calculating your turnover
When calculating your turnover, ask yourself:
- does your turnover rely on seasonal or other influences (for instance, if you sell virtual postcards, you will see a spike in turnover around holidays like Christmas)?
- have you just started your business? It may take a while to get up to speed, and your initial turnover will be lower.
Compare your turnover to other turnover figures in your sector. This gives you a better insight in what you can expect and how you are doing. You will find your sector organisation and statistics on the (Dutch) Ondernemersplein pages.