How to estimate your turnover when starting a business

What does turnover mean?

Turnover is all the money you receive from the sale of products or services over a specific period. For example, per day, week, or year. Costs are not yet deducted.

The simple formula for turnover

The basic formula is simple: turnover = number of sales x price. So you need to know how much you sell and what the price is.

Example of calculating turnover for products

A coffee corner sells 200 cups of coffee a day. On average, a cup of coffee costs €3.20.

200 cups of coffee x €3.20 = €640

So the turnover is €640 per day.

Example of calculating turnover for services

A coach has 12 clients in a year, each receiving 20 hours of coaching. One hour of coaching costs €75.

12 clients x 20 hours x €75 = €18,000

So the turnover for that year is €18,000.

But how do you know how many clients you will get? And what a good price is? It is these kinds of questions that make estimating turnover more difficult than simply using the formula. 

How do you estimate the number of clients you will get?

To determine how many clients you can attract, you will need to do some research. These questions can help you with that:

• How big is your target audience?
• How many hours do you work?
• Who are your competitors?
• How visible are you online?

Gather information about your customers and sector. For example, are you starting a shop? Then find out how many people walk down the shopping street each day. And how many of them go into a shop. Also research how much customers spend on average. You can often find this information through sector organisations.

What factors influence your turnover?

Think about which factors influence your turnover. Such as your price, marketing budget, location, and the seasons. Bear in mind that you will not earn money every hour. You will also spend time on things like administration, marketing, or training courses, and you might not always have customers.

Calculate your turnover in 3 scenarios

Even if you take all factors into account, you can never know exactly how many clients you will get or how much you will sell beforehand. Perhaps your product will become very popular, and your turnover will be higher than expected. But what if your turnover is lower than you hoped for? Will you still earn enough money?

Most entrepreneurs work through 3 possible scenarios. This helps you avoid surprises:

1. Good situation
   You have plenty of assignments or sell plenty of products and generate high turnover.
2. Average situation 
   You have a normal amount of work or sell a normal number of products. You have average turnover. This is the most likely scenario.
3. Slow situation 
   You have few assignments or sell few products and generate low turnover.

Example: a gardener’s turnover

You are a gardener and charge €65 per hour. Sometimes the weather is too bad to work in. And you also want to go on holiday now and then. That is why you assume you can work 44 weeks a year.

You use a different number of working hours for each possible situation. This is an average number. You will probably work more hours in some weeks than in others.

1. Good situation

You work 30 hours a week for clients.
30 hours x 44 weeks = 1,320 hours
1,320 hours x €65 = €85,800

2. Average situation

You work 20 hours a week for clients.
20 hours x 44 weeks = 880 hours
880 hours x €65 = €57,200

3. Slow situation

You only work 10 hours a week for clients.
10 hours x 44 weeks = 440 hours
440 hours x €65 = €28,600

Example: turnover of a gift shop 

You have a gift shop in a busy shopping street. On average, 1,200 people pass your shop every day. 3% of them come in, so you have 36 customers per day. The shop is open 26 days a month: 26 days x 36 customers = 936 customers per month.

You use a different purchase amount for each possible scenario.

1. Good situation

Customers spend more than you expect: €40.
936 customers x €40 = €37,440

2. Average situation

Customers spend what you expect: €35.
936 customers x €35 = €32,760

3. Slow situation

Customers spend less than you expect: €30.
936 customers x €30 = €28,080

Common mistakes when estimating turnover

Many business owners starting out find it difficult to estimate their turnover accurately. These are the most common mistakes and how you can avoid them:

• Being too optimistic in your calculations 
  It is better to be cautious in your calculations. The 3 scenarios will help you with this.
• Expecting lots of customers too quickly
   It takes time for people to find you. Take this into account in your calculations.
• Thinking that turnover is the same as profit or income 
  Turnover is all the money that comes in. You must deduct costs and taxes from your turnover to calculate your profit.