The difference between gross sales and net sales

Pipedrive’s revenue management software allows sales teams to track revenue, sales (including gross and net sales) and invoices – all from one location. It gives you real insight into your sales performance, which helps you make informed and strategic decisions. From damaged goods to late deliveries, customers can decide to send the product back for a variety of reasons, and as long as they’re in line with your return agreement, they can request a refund. As all the deductions have to be made retroactively, you can only calculate your net sales at the end of the sales period. As a sales manager, you can create a plan around working with other teams to address customer concerns and discuss ways to add value to increase profits. This free guide examines three vital steps to establish a measurable sales pipeline that drives repeatable, predictable sales growth.

There should be no discounts, allowances, or returns included in this figure. The purpose is to get a sense of the overall revenue of your business within a selected period of time. It’s also important to compare the company’s gross sales to the industry average. This way, you’ll know any areas where the company is underperforming or areas where the company is outperforming its competitors.

This way you can get a better understanding of the company’s profitability. On the other hand, revenue and gross sales are similar terms that represent the total income generated from sales. However, revenue may be calculated after deducting any returns, discounts or allowances. Accurately tracking and analyzing these metrics can help businesses identify areas for improvement, optimize their sales strategies and make informed decisions to drive growth and profitability.

Free templates to track sales

For example, if your net sales figures are considerably lower than your competitors, there’s cause for investigation. You may need to adjust your pricing, amend your product features, or upgrade your product quality to gain a competitive advantage. Gross sales allow you to measure the total amount of revenue made by your sales team, whereas net sales are a better measure of performance, sales tactics and product/service quality.

For example, if the company has seen a decline in sales over the past few months, the business owner can identify the reason for this decline and make changes accordingly. Gross sales, known as top-line sales, are the total of all product and service sales reported by an organization during a period. Because gross sales are the total unadjusted sales, no returns, allowances, rebates, or discounts are included.

  • Other non-operating revenue gains may come from occasional events, such as investment windfalls, money awarded through litigation, interest, royalties, and fees.
  • This is the raw number, untouched by discounts, returns, or any other costs.
  • The income statements of publicly-traded corporations typically begin with net sales or net revenues.
  • A company generally attempts to deduct as many expenses possible to make its taxable gross sales as low as possible, thus minimizing its tax liability.

Gross sales serve as the basis for measuring top-line revenue within a certain timeframe. It would be impossible to calculate important revenue metrics, such as net sales and gross profit margins, without gross sales. Gross sales refer to the grand total of all sales transactions over a given time period. This doesn’t include the cost-of-sales or deductions (like returns or allowance).

Gross sales vs. net sales

Read on to learn what distinguishes these metrics and how you can use both of them to understand and increase your revenue. The buyer wound up being perfectly happy with the product it bought in lieu of the one they originally ordered. After receiving the Battery Operated Light Up Hooting Owl Pest Deterrent in the mail, they decided they didn’t need it.

Calculate gross sales for your store

Harold Averkamp (CPA, MBA) has worked as a university accounting instructor, accountant, and consultant for more than 25 years. This website is using a security service to protect itself from online attacks. There are several actions that could trigger this block including submitting a certain word or phrase, a SQL command why does gaap require accrual basis accounting or malformed data. Nurture and grow your business with customer relationship management software. Let’s consider our „Battery Operated Light Up Hooting Owl Pest Deterrent” example. If you purchased one of these owls and found that only one of its terrifying laser eyes was lighting up, you might consider returning it.

Say the operations at the Battery Operated Light Up Hooting Owl Pest Deterrent factory ground to a halt, and the company wound up shipping one of its products to a buyer a month late. By that point, the customer had grown frustrated with the number of pests in their backyard and turned to a company that sold battery-operated, laser-eyed, screeching hawk pest deterrents. Here, we’ll take some time to understand what gross and net sales are, what differentiates the two from one another, and what they can show about the health of a business.

Analyzing Revenue During a Specific Period: Uncover Trends and Patterns

Compare your own figures with competitors to see how you’re performing in the marketplace and identify new opportunities and areas of improvement in your existing sales processes. As well as a general indication of your business’s financial health, net and gross sales can also be a benchmark for competitive analyses. While it can be tempting to rely on gross sales as a measure of performance (as it’s always going to be equal to or higher than the net sales), it can be misleading. If you’ve had to refund most of those sales, you’re not using accurate sales numbers for your forecasting.

Sales returns allow customers to return an item for a full or partial refund within a certain number of days. When the income statement is finished, you can use this information to calculate your sales tax and inform your future sales activity. The income statements of publicly-traded corporations typically begin with net sales or net revenues. To avoid getting overwhelmed, use a sales CRM like Zendesk Sell to keep tabs on all the important metrics. Zendesk automates the measurement of sales metrics so you can focus on keeping your top and bottom lines strong. But they’re not the only sales metrics you should analyze and monitor regularly.

If your POS dashboard includes discounts and allowances, it might already calculate net sales for you, so you’ll need to figure that out on your own. With Shopify POS, it’s easy to create reports and review your finances including sales, returns, taxes, payments, and more. View your financial data for all sales channels from the same easy-to-understand back office. Gross sales shows the company’s total revenue, whereas the net sales show its overall profit. The store’s gross sales are the product of the ASP and the number of units sold, which amounts to $8 million in gross sales.

First, we need to determine how many of these top four products have been sold. Gross sales are calculated by adding all sales receipts before discounts, returns, and allowances together. Because gross sales show how much money you make against the cost of the product, it is considered a starting point to achieve a healthy net profit.

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