Turnover vs Profit: What’s the Difference and Why It Matters
Turnover and profit are two of the most commonly misunderstood financial terms — but confusing them can lead to major business mistakes.
In this guide, we’ll break down the difference clearly, provide examples, offer a comparison table, and even give you a free calculator to check your own figures.
What is Turnover?
Turnover (also called sales revenue) is the total income a business generates from selling goods or services before any expenses are deducted.
It answers the question:
How much money did we bring in from sales?
Example:
- A bakery sells £500,000 worth of cakes and pastries in a year.
- Turnover = £500,000
What is Profit?
Profit is the money that remains after all expenses have been deducted from turnover.
There are different types of profit:
- Gross Profit: After deducting only the Cost of Goods Sold (COGS).
- Operating Profit: After deducting operational expenses (salaries, rent, marketing).
- Net Profit: After deducting all expenses including taxes and interest.
It answers the question:
How much money did we actually keep after costs?
Example:
- Turnover = £500,000
- COGS = £200,000
- Operational expenses = £150,000
- Taxes and interest = £30,000
Calculations:
Turnover vs Profit at a Glance
Why the Difference Matters
- Turnover growth without profit can hide major operational problems.
- Profit growth without turnover growth shows strong cost control but limited market expansion.
- Smart businesses track both to ensure sustainable success.
Quick Example
Company A:
- Turnover: £1 million
- Net Profit: £50,000
Company B:
- Turnover: £400,000
- Net Profit: £80,000
Which business is healthier?
Company B — despite lower turnover, it keeps more profit.
Interactive Turnover and Profit Calculator
Use this simple tool to calculate your net profit:
Common Misconceptions
- High turnover = High profit: Not necessarily.
- Profit is just turnover minus costs: True only if you include all costs, not just production expenses.
- Bigger business = healthier business: Sometimes, but only if margins are protected.
Final Thoughts
Understanding the difference between turnover and profit helps you:
- Make smarter decisions
- Identify risks early
- Focus on sustainable growth, not just top-line vanity
Remember: Turnover is vanity, profit is sanity, and cash is reality.
Deepen your financial understanding with these related insights:
- Is Turnover the Same as Profit? (Simple Explanation for Businesses) — Clarify common misconceptions about turnover and profit.
- Turnover vs Net Profit: Why Understanding Both Matters for Business Success — Learn how net profit gives a clearer picture of financial health compared to turnover.
- Turnover vs Gross Profit: Key Differences Every Business Owner Should Know — Explore how turnover and gross profit interact and impact business decisions.
