Gross and Net sales are two of the most common metrics used to track the performance of a business. In this article, we’ll show you the difference between gross and net sales along with how you can calculate them.
What is Gross sales?
Gross sales is the total amount of sales made within a specific time. This only includes the money generated by adding up all your sales figures into a single amount. It’s normally calculated for monthly, quarterly and annual figures. Ideally, it’s the sum of all transaction bar any deductions.
Calculating Gross sales
The formula for is as follows,
Gross sales = Sum of all sales + Sales discounts + Sales allowances + Returns
Why it’s important?
Measuring Gross sales is important because,
- It’s impossible to calculate net sales and revenue without Gross sales
- Gross sales help track the ratio between Total sales against Sales discounts and Total returns
- Measure the total amount of revenue made by the sales team.
What is Net sales?
Net sales is the amount left after deducting all discounts, allowances, and returns. It’s also known as net revenue after the deductions are made. Plainly put, it’s the revenue left after all the sales costs are accounted for.
Calculating Net sales
Net sales are calculated by the following formula,
Net sales = Gross sales (total revenue) – Sales Allowances – Sales Discounts – Sales returns
Why it’s important?
- Net sales are the only comprehensive measure of company sales revenue.
- Net sales data helps to evaluate and improve strategies for sales and marketing teams
Difference between Gross and Net sales
Sales analysts get significant insight from the difference between gross and net sales. This gives clear insights into the performance of sales and service strategies and turnover rates. Knowing these things helps marketing and sales teams to tweak and optimize their strategies to improve these metrics.
These sales values are fairly simple to calculate. All you have to do is plug the values into the formula and that’s it.
Until next time, happy serving!