Business owners consider turnover as a fundamental metric for the growth of their firm. However, beyond this surface-level figure lies a deeper narrative that distinguishes one company from another.
While two firms within the same industry may show similar turnover figures, the underlying dynamics of their revenue streams can be vastly different. The quality of turnover is an important differentiator between companies that might look similar at first sight.
Shaped by many different factors that go beyond mere numerical elements quality turnover also embodies elements of sustainable growth, customer loyalty, innovation capabilities and strategic decisions of the firm’s leadership. Let us list a number of dimensions that have an influence on the overall revenue quality of a business.
First, the origin of turnover shows crucial insights into a company’s customer acquisition strategies. Turnover derived from extensive marketing campaigns may lead to immediate results but could lack the longevity that is typically the result when you have sales by organic customer referrals. When lots of marketing money is spent to acquire new customers, the customer acquisition cost (CAC) is high. Newly acquired customers will boost turnover in a given year, but the question remains how long those customers will remain a client. In other words, will the marketing dollars lead to a higher turnover in the long run? A lot will depend on the repeat purchases of those new clients which are dependent on the ‘value for money’ that one gets from buying the product or service.
Second, the composition of turnover also reflects the innovation capabilities and product diversification power of a company. Revenue derived from cutting-edge products signals market relevance and adaptability, whereas reliance on outdated offerings can render a company vulnerable to obsolescence. Striking a balance between innovation and legacy products is crucial, ensuring sustained revenue streams. A simple question to answer is what percentage of turnover comes from products that the company did not offer five years ago. A percentage of approximately 20% typically shows a healthy balance where the firm knows how to balance selling older cash cows and new high-potential products.
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