Gross Sales vs Net Sales: Differences & How to Calculate

gross sales vs net sales

Instead of returning it, you say, „Okay, I’ll take a little money off the price.“ That’s a sales allowance. It means the customer still buys the product, but pays less because it wasn’t perfect. It’s like when you sell lemonade; some days, you sell big cups for more money, and other days, only small cups for less. This means the company has to make sure they’re selling things that make them the most money. In other words, net revenue includes all income received by the company, including sales, investments, interest, and dividends.

Net sales vs. net revenue

Gross sales represent a monetary amount, while gross sales volume represents a number of items. Net Sales tell us how much money a company really makes after selling things. It’s like the amount of cash a company ends up with after a garage sale, once all the costs and returns are sorted out.

Key Differences

Sellers don’t account for a discount unless a customer pays early so notations must be retroactive. These companies allow a buyer to return an item within a certain number of days for a full refund. However, this is generally more confusing, so net sales are typically the only value presented. Gross sales measures the total sales of a company, unadjusted for the costs related to generating those sales.

  1. This part is super important for understanding if a company is doing well.
  2. A sales return occurs when a buyer sends a product back to a seller for a partial or full refund.
  3. The gross sales formula is calculated by totaling all sale invoices or related revenue transactions.

Supercharge tracking your sales metrics with the best CRM

Gross sales isn’t a particularly accurate metric when considering the health of a business or its sales processes. If you only consider gross sales — separate from the rest of an income statement — you might see a considerable overstatement of a company’s sales figures. In contrast, net sales are the total revenue of a company after the deduction of returns, discounts, and allowances.

Using your gross and net sales figures, you can refine your company’s sales strategies, improve your product’s quality, and focus on your strength points. Over time, these actions will enhance your company’s overall performance and improve your gross profit margin. To calculate net sales, you should deduct four important metrics from your gross sales figure. Gross sales measures a company’s total sales without adjusting for gross sales vs net sales the expenses of generating those sales. The gross sales formula is calculated by totaling all sale invoices or related revenue transactions. However, gross sales do not include operating expenses, tax expenses, or other charges, which are all deducted to calculate net sales.

A business’s income statement should analyze its direct costs, indirect costs, and capital costs. If you’re running a company, you should have a thorough understanding of net sales and how they’re calculated. Gross sales and net sales are two common metrics that offer distinct advantages when it comes to gauging revenue. If you’re not sure what they are and how they differ from each other, you’re not alone. Learn the 21 essential KPIs to track, from customer acquisition to brand sentiment. If you find your business offering allowances on a regular basis, something needs to change.

How to create a sales process flowchart: 4 steps to streamline your sales

gross sales vs net sales

Deskera Books can be a blessing in disguise if you want to improve your cash flow and budgeting for your business. This means that they have a natural debit balance as opposed to the natural credit balance for the sales account. This insights and his love for researching SaaS products enables him to provide in-depth, fact-based software reviews to enable software buyers make better decisions. For example, if a buyer purchases your stocks on credit and manages to pay within the first 10 days of invoice issuance. He or she might be offered a percentage discount based on the former agreement between both parties. Learn how to create an effective sales commission structure that motivates your team and boosts revenue with our step-by-step guide.

However, these aren’t the only metrics you need to track to ensure your sales team and process are as effective as possible. You need a tool that offers comprehensive sales reporting capabilities to ensure you have all the data you need to boost sales and revenue. Regarding the deductions in a company’s account, the three major ones we talk about are sales discounts, sales allowances, and sales returns. Gross sales are the total amount of money a company receives after selling products without any deductions, while net sales involve the deduction of allowances, returns, discounts, and taxes. Total sales revenue is another name for gross sales, so the difference between them and net sales is that they include the total number of sales plus returns, allowances, and discounts.

That’s why it isn’t enough to run a gross sales analysis against your competitors. Gross sales is best used when linked with other relevant financial metrics, such as net sales and profit margins, to provide a comprehensive view of a company’s financial health. Gross sales and net sales are important metrics to understand — both in relation to and independently of one another.

Jochen Bocksruker