Turnover, Profit, and Margin, Understand the Difference in Business
The terms turnover, profit, and margin have become commonplace and are often discussed among entrepreneurs. You may also frequently get questions about these three things. However, are all three the same? These three are different things.
Check out the following reviews to help you further understand what turnover, profit, and margin are.
Definition of Turnover, Profit and Margin
To make it easier for you to understand the three, the first thing you need to know is the definition of each of these terms.
Turnover is the result of sales within a certain period before deducting any costs, or better known as gross income. Profit is the money you make from sales within a certain period after deducting other expenses, also known as net income. Meanwhile, margin is the percentage of profit from the products you sell.
How to calculate
The turnover calculation is quite simple, you just need to multiply the price by the number of products that were successfully sold. For example, if in this period you managed to sell 1000 products at $ 20,000 each, – then your turnover in that period would be $ 20,000,000, –
Profit is calculated by subtracting turnover from other costs such as cost of goods sold, cost of goods manufactured, employee salaries, operating expenses, sales returns, taxes, etc. The result of this calculation is called profit or net income.
What about margin? As the definition above, margin is the percentage of profit from a product, so margin is calculated by dividing the profit by the capital times 100% (Margin = Profit: Capital x 100%).
Examples of differences in turnover, profit, and margin
To help you understand the difference in turnover, profit, and margin better, take a look at the sample discussion below:
A smartphone factory managed to sell 3000 units of smartphones at $ 2.8 million, – per unit. To manufacture and market the mobile phone, the company pays $ 2,450,000, – then:
Total Turnover: 3000 x $ 2.8 million = 8.4 billion.
Profit: $ 2,800,000 – $ 2,450,000 = $ 350,000 per unit.
Margin: $ 350,000: $ 2,450,000 x 100% = 14.3%.
Tips to Increase Turnover, Profit, and Margin
A. Increase Turnover
If you want to increase your turnover, there are many ways you can take it, for example, focusing your marketing efforts on the most potential markets, increasing sales distribution channels, and many more. A big turnover can be achieved if you can create product turnover quickly.
B. Increase Profit
You can increase your profit in many ways, from saving on production costs (for example looking for other suppliers that can provide cheaper raw materials and of equal quality), improving quality, and adding value to products (so you can sell them at a higher price), to doing tight quality control (reducing the risk of returns due to production defects), and many more.
C. Increase Margins
Increased margin is closely related to the price of the product that you will sell. The bigger the margin taken, the more expensive the price of your product will be. Look at the case example above, the smartphone company could sell smartphones for over IDR 2.8 million, but this will create new problems.
Products that are sold too expensive will be difficult to sell, especially if there are similar products in the market with the same quality at a lower price. Therefore, you must consider carefully when determining the profit margin. Don’t be too big or too small.
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