For instance, a company may offer a 2% discount to a buyer for paying off an invoice within ten days of receiving it. At the end of the year, that team’s sales are going to be reported on the company’s income statement. Well, two of the most prominent ones are going to be gross sales and net sales.
Gross sales represents all the income from selling products or services, whereas total revenue is a broader term that encompasses all income a company generates. While that includes gross sales, it also includes income from dividends, interest, royalties, and licensing fees. However, SaaS businesses don’t use either of these metrics to track their sales and profits. Instead, many SaaS companies lean on gross profit and gross margin instead. These metrics offer better insights into profitability and make it easier for SaaS leaders to optimize their various streams of revenue.
Gross sales is typically discussed in relation to net sales in the retail industry. This metric is necessary as a top-line reflection of your company’s sales revenues over time and to detect trends in consumer spending. Gross sales represent the total money derived from all sales transactions within an accounting period – without deductions of any kind.
Why does knowing the difference between gross sales vs. net sales matter for your business?
- The real challenge though is keeping track of the different components that go into the net sales equation, among all the other key financial metrics your company generates.
- If you want to grasp the ins and outs of financial success, keep on scrolling.
- Net sales are calculated by deducting sales allowances, sales discounts, and sales returns from gross sales.
- Gross sales are usually written at the top of an income statement since they’re a raw number that hasn’t been subjected to any deductions.
Business and accounting, like all specialties, have their jargon and technical terms. Many business terms are used regularly, but it isn’t always clear what they mean – or even if they’re being used properly. Deskera is the best platform for managing your financials and budgets. Be it invoicing, inventory, CRM, accounting, or HR & payroll, Deskera can help you in every aspect. Deskera is a cloud system that brings automation and therefore eases business functioning.
It avoids misleading figures in financial reporting
Although this representation takes a lot of space, it also outrightly explains the quality of your transactions. So if a company wants to put them into separate columns, the accounting officer must understand how each transaction went so he or she can put it into the appropriate lines. Discounts are given on sales either based on early payments, bulk purchases, or a good buyer-seller relationship. That’s where the role of a robust CRM, like Streak, can really come in handy. Tracking your net sales will help you stop these scenarios before they start and improve your company’s profitability. To avoid getting overwhelmed, use a sales CRM like Zendesk Sell to keep tabs on all the important metrics.
Opting for a solution that offers automated calculating and reporting is best, as this frees up time for you to gross sales vs net sales focus on your sales process and team. Let’s take a look at an example to illustrate this calculation, sticking with the cybersecurity example we used before. Our earlier example established that the cybersecurity company’s gross sales amounted to $5,190 for the past quarter. In this case, the two numbers are both important for accounting and profit calculation – but they measure different things. Gross sales are your unadulterated total; it’s just how much money you receive from sales. A high gross sales figure may look impressive; however, if you have had to refund most of those sales, then it is deceptive in nature.
What you’ll learn:
This number helps us compare different companies or see how the same company is doing over time. It’s a very important clue to see if the company is doing its job well in selling things. Based on the above calculation, the company’s net sales for the past quarter amount to a grand total of $4,530. Knowing these numbers could help you set the correct gross sale KPIs with good qualified leads. This forces your sales team to focus on high-budget and high-quality deals in tandem, hence motivating them. It is tempting to rely on gross sales as a measure of performance as it is always going to be higher or equal than the net sales.
Sales Allowances
Seamlessly calculate customer-centric data like retention rates, or customer acquisition costs broken down by ideal customer profile, vertical, product, or market segment. Or closely follow your company’s capital efficiency with tailored cash metrics. These two financial metrics are basic building blocks for many teams looking for a high-level perspective of their sales (and potential profits). Despite their pairing, the two metrics have quite a few differences and corresponding similarities.
Continually offering allowances not only impacts your revenue, but it can make it harder to accurately forecast your future sales. Sales returns allow customers to return an item for a full or partial refund within a certain number of days. In this context, “sales discounts” doesn’t refer to sales promotions, promotional discounts or rebates and seasonal offers, it only applies to the early payment discount. For example, your company might send a customer an invoice for $10,000 to be paid within 30 days. However, you could offer a sales discount of 1% off if they pay within 10 days (this particular offer would be known as a 1/10 net 30 in discount terms). When the income statement is finished, you can use this information to calculate your sales tax and inform your future sales activity.