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Gross and net Sales: What’s the difference?

Ever wondered about the differences between gross and net income? Find out what they mean in this blog post.

Jon Davis · December 6, 2023
Gross and net Sales: What’s the difference?

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It’s undeniable that gross and net sales can be confusing, so we’re here to clear up any confusion you may have.

In sales, the company's revenue helps you measure profitability. But, have you made sure you’re measuring net revenue vs sales in the most efficient way possible?

Gross sales and net sales are metrics that offer crucial insight into how you’re performing in terms of your revenue.

We’ve created this blog post to help you fully understand the importance of this metric, discuss the concept of gross and net sales and provide a gross sales definition and much more.

This will help you have a clearer idea of what gross and net sales are, and what they mean about one another – as well as how these can benefit your business.

What is gross sales?

When it comes to gross sales, this term applies to a metric that shows the total sales of a company, without including any deductions. These deductions involve any costs related to generating these sales.

To calculate gross sales, the formula is as follows:

Generally speaking, gross sales affect your business’s financial health. This is because knowing your gross sales can help you assess your business’s tax plan. Planning ahead for means you’ll be able to forecast more accurately and plan tax return activities.

What is net sales?

Have you ever pondered what net sales means?

The net sales definition is the sum of your gross sales minus the deductions. These subtractions include discounts, returns and general allowances. You can only calculate your net sales at the end of any sales period because this is calculated retroactively.

Here’s the formula for calculating net sales:

Your net sales revenue, or net sales value, is crucial to your financial health because, from a business perspective, net income enables investors to assess their own profitability.

For example, if a company has a negative net sales price, investors may lose interest. On the other hand, if you do have a positive net sales price and in correlation to this, see an increase in leads, this isn’t a cause for concern but could simply show that your business is attractive to clients.

Net sales vs gross profit

While understanding what both gross and net sales mean as separate metrics is useful, understanding how net sales vs gross sales work together means that you’ll have a better idea of how to boost net sales vs gross profit.

If a company's gross sales minus net sales are more than what's expected in their specific industry, this could suggest that the company is giving bigger discounts or receiving more returns than other companies in the same sector.

Typically speaking, companies aim to match or exceed the average of their industry. Therefore, if a company offers discounts, it may be because of issues during transport. If a company offers too steep a discount they might change these terms to be more competitive.

Tips for maximizing net sales

There are a few ways that can potentially help to maximize net sales, including instances such as:

  • Reducing utilities: Reducing utilities means you can keep your business functional, but still cut costs. You can also achieve this by asking about better payment rates or committing to a better contract
  • Downsize insurance premiums: You may be paying to cover the equipment you don’t necessarily need or you might be able to reduce unnecessary rates
  • Shrink labor costs: Manage employee's working schedules so you’re not paying overtime unnecessarily.

Maximize your profitability with Capsule

Being aware of gross and net sales is vital to monitor your company's profitability, alongside measuring its financial health.

If you want to automate workflows, manage contacts, track your sales pipeline, and more then try Capsule for free for 14 days.

To accuarely forceast your pipeline, close deals faster and have all your propsect's details at your fingertips, try Capsule, for free, today.

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