It reflects a business’s total revenue during a specific period but does not account for all the expenses accrued. This is why gross sales are not typically listed on an income statement or listed as total revenue. In total, these deductions are the difference between gross sales and net sales. If a company does not record sales allowances, sales discounts, or sales returns, there is no difference between gross sales and net sales. Net sales is the best, most accurate reflection of the efficacy of a company’s sales operations. Deductions are important in understanding how well a business is selling its product or service.
- As a sales manager or someone working on the sales team of a company, it is essential to forecast sales accurately.
- Gross sales provide insight into a company’s performance, as they show the total number of transactions.
- Having both numbers can help you run an accurate competitive marketing analysis to see how well your business is performing against others in the industry.
- Maybe you need to drop an underperforming product line, for instance, or put more resources behind an emerging service offering.
- You might have high gross sales, but the net sales report might show that one of the products is being returned frequently.
- If the difference is significant, it’s an indication that there’s poor quality control within the company.
In this sense, they come into an agreement where the seller keeps the product with a partial refund against the paid purchase. The amount of refund needs to gross sales vs net sales be removed from the total amount of the gross sales generated. Sales returns pertain to the refund resulting from customer returns due to product issues.
What Is Sales Revenue? How to Calculate and Examples
That’s the number that truly reflects your revenue and profitability. Understanding the difference between these two metrics is crucial for your financial planning and decision-making. You can use the metrics learned through the gross and net sales data to steer them in a more profitable direction. Even the sales team can stay motivated when they know their capacity and aim higher based on that. As an example, if your net sales are lower when compared with your competitor’s, you can conclude that some aspects need investigation and improvement.
If a business has any returns, allowances, or discounts then adjustments are made to identify and report net sales. Net sales do not account for cost of goods sold, general expenses, and administrative expenses which are analyzed with different effects on income statement margins. Sales volume refers to the number of products sold in a specific period of time, while gross sales are the revenue the company gets by selling these products. Net sales is the amount of revenue a business earns after accounting for all the relevant expenses and deductions.
How does Gross Sales Affect Business Decisions?
These companies allow a buyer to return an item within a certain number of days for a full refund. To make your life easier, you should use a reliable CRM tool to help you track all the financial data of your business (especially when it comes to sales metrics), like Streak. Relying on gross sales or net sales alone without comparing the two together can mislead you while evaluating your company’s performance.
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.