Whats the Difference Between Gross Sales vs Net Sales?

This free guide examines three vital gross sales vs net sales steps to establish a measurable sales pipeline that drives repeatable, predictable sales growth. Lead forms are easy ways to start conversations with potential customers. Discover how to design yours to drive higher completion rates with seven examples. 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. However, you find it’s still deterring a sufficient number of pests, and you don’t want to go through the trouble of sending it back.

How to Calculate Net Sales

Your gross sales also give you a good idea of how many customers you’re getting in the door, so to speak, and how many of them are purchasing items once they’re there. This calculation is raw – it just looks at one aspect of your sales. It’s useful, certainly, in determining a company’s value and worth; however, it doesn’t begin to represent a company’s profits or even how much money it truly made.

The price the company pays is an allowance and that partial refund is reflected in the company’s net sales. To help you better understand how to calculate gross sales, here’s an example in action. Net Sales is a key number we look at to see how good a company is at making money.

1. Gross sales and gross margin work as two separate metrics that give you different insights into your company’s financial health.
2. This metric is necessary as a top-line reflection of your company’s sales revenues over time and to detect trends in consumer spending.
3. This top score helps companies and people understand how much was sold in total.

However, gross sales can be trusted, but you should be approached with cautious optimism. Net income or net sales is sightly more complicated to calculate, as you need to know all of the deductions that have been applied to your sales. Total revenue divided by number of units sold, customer accounts, or product users. Your gross margin is typically expressed as a percentage of the revenue your company retains after subtracting COGS. So, for example, if your company keeps $.50 of every dollar in revenue, your gross margin is 50%. Gross sales show the number of sales and accordingly reflect the company’s performance — but they don’t reveal how well the company can convert these sales to profit.

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When cases like this happen, the seller offers a sales allowance after the buyer has purchased the goods in question. Now, at the time of purchase, the seller does not know how many buyers would make early payments. So the discount is only offered at the time of receipt of cash from customers.

What High-Performing Brands Know About Sales and Service

Companies that allow sales returns must provide a refund to their customer. A sales return is usually accounted for either as an increase to a sales returns and allowances contra-account to sales revenue or as a direct decrease in sales revenue. As such, it debits a sales returns and allowances account (or the sales revenue account directly) and credits an asset account, typically cash or accounts receivable. This transaction carries over to the income statement as a reduction in revenue. Gross sales can be important, especially for retail stores, but it is not the final word on a company’s revenue. It reflects a business’s total revenue during a specific period but does not account for all the expenses accrued.

The main difference between net sales and gross sales can be of interest to an analyst. If the difference between both figures is gradually increasing over time, it can indicate quality problems with products that are generating unusual allowances and large sales returns. The gross sales include any sales transactions that generate revenue and exclude all costs, expenses, and other charges. On the other hand, your net sales figure provides more in-depth data points with which you can identify potential problems. Because net sales accounts for allowances, discounts, and sales returns, you can also get some idea about company profits.