Turnover Versus Margin: The Number That Matters Isn't Always the Biggest One

Turnover is one of the first numbers people use to describe a business, but it says surprisingly little on its own.

A company can be extremely busy, have a full order book and invoice more than ever while producing inadequate margin.

This is especially relevant in construction. A £1m project sounds more impressive than a £500,000 project, but contract value does not tell you what the company will retain after labour, materials, subcontractors, preliminaries, management time and risk have been absorbed.

Margin can disappear through many small movements: additional labour, a subcontract package above allowance, an extended programme, missed scope or poor variation recovery.

Taking on more work does not repair weak economics. If the business is making an inadequate return on £1m of work, doubling the turnover can simply double the cash, resource and risk required to produce the same problem.

Owners need to understand which projects and customers genuinely create value, where costs exceed allowances and whether overhead is growing faster than gross profit.

Growth is valuable when it is good growth. I would rather see a business slightly smaller, properly controlled and producing a sensible return than larger for the sake of the headline number.