Gross Sales vs. Net Sales: Understanding Key Differences

Quick: What’s the difference between gross sales vs. net sales?

Not everyone is a born financial analyst, so don’t feel bad if you’re not entirely sure — you’re in good company. Just 45% of sales leaders have high confidence in the accuracy of their forecasting (including their projection of gross and net sales), according to Gartner.

Even if you’re crushing your sales quotas, you need to have a deeper understanding of how your sales are trending to adapt strategies and keep an edge over the competition. Knowing the difference between gross and net sales — and how to track them — is key to this effort.

This guide will explain everything you need to know about the difference between gross sales and net sales and offer resources on the best tracking tools available online.

What you’ll learn:

• What are gross sales vs. net sales?
• Why do you need to track and understand gross vs. net sales?
• How to calculate gross sales
• How to calculate net sales
• How to add gross and net sales to an income statement
• Tools for tracking gross and net sales

What are gross sales vs. net sales?

Very simply, gross sales are the total amount of your sales without factoring in deductions (costs incurred to close those sales). Net sales are your gross sales minus deductions such as allowances, discounts, and returns. These are both calculated at regular interviews throughout a fiscal year, typically monthly or quarterly.

Why do you need to track and understand gross vs. net sales?

Gross sales provide an objective measurement of your company’s ability to generate revenue. With this data, you can make informed decisions about what you need to do to increase sales to hit predetermined targets. It’s also a good measure of how successful your team is at closing deals.

When you track net sales, you can see what deductions are impacting your bottom line — things like product promotions, discounts, and coupons. With an overall view of your net sales, you can find ways to reduce deductions that cut profits or add incentives to encourage more sales.

How to calculate gross sales

To calculate your company’s gross sales, add up the total sales revenue over a set period of time. Most people track this monthly, quarterly, or annually. To ensure that your gross sales calculation is as accurate as possible, you must carefully account for all sales data, which means reviewing all sales data sources. Also, keep in mind that gross sales do not include taxes, expenses, or any deductions.

Here’s the formula to calculate gross sales:

Units sold x unit price = gross sales

A gross sales calculation example

For example, Casey, who specialises in selling dog sweaters online, had a total of 10,000 orders in the past fiscal year. The sales price of one of her sweaters is $35. Her formula to calculate gross sales would be:

10,000 x $35 = $350,000

How to calculate net sales

Net sales are a measure of a company’s profit — often reported on income statements. They are the portion of revenue that remains after deductions, which include:

• Allowances: When a price is reduced due to a problem with the product or service, such as its quality or condition, an incomplete shipment, or incorrect price.
• Discounts: Rewards customers receive when they meet certain criteria. For example, a seller may reduce the total price of a product or service if the buyer pays in full rather than in installments.
• Returns: Merchandise sent back to the seller by a buyer for any number of reasons, including defective or incorrect items, excessive goods, or articles shipped late.

Here’s the formula to calculate net sales:

Gross sales – (allowances + discounts + returns) = net sales

Let’s return to the example above. When Casey calculated her net sales, she included allowances for customers who bought defective items. Last year, there were only two customers who demanded a discount of 50% on damaged sweaters, so she included an allowance of $35 (2 x $17.50) in her gross sales report. Casey also factored in a 25% coupon code redeemed by 20% of her customers. A redeemed coupon code for a unit price of $35 equals a discount of $8.75 per sweater. If this applies to only 20% of her deals, that would mean 2,000 units, totaling a discount of $17,500. She also had a product return rate of 2%, or 200 units. At $35 a unit, that totals $7,000.

Here’s what the calculation would look like:

$350,000 – ($35 + $17,500 + $7,000) = $325,465

Looking at her net sales numbers from the past fiscal year, Casey can review her sales strategies and make adjustments to increase profits. Next year, for example, Casey might reduce her coupon code to 15%, which should add about $7,000 to her net sales.

How to add gross and net sales to an income statement

Also known as a profit and loss (P & L) statement, an income statement is a financial report that details your revenue and expenses over a fixed period of time.

You’ll want to report on both gross and net sales. Here’s how Casey prepared this portion of her income statement, including her cost of goods sold (COGS), which totaled $200,000:

Casey’s Dog Sweaters, Partial Income Statement for 2023	Deductions	Totals
Gross Sales		$350,000
Less Allowances	$35
Less Discounts	$17,500
Less Returns	$7000
Net Sales		$325,465
Cost of Goods Sold (COGS)		$200,000
Gross Profit		$125,465

An income statement is a chance to review the discrepancies between your gross and net sales numbers. If the difference between the numbers is very high, it can be a sign that your company is losing money on discounted products.

Tools for tracking gross and net sales

There are countless resources available online to help you track both gross and net sales. But it’s smart to have a tool that’s built into your CRM platform so that you can view real-time insights — and take immediate action to help hit your sales forecast.

Salesforce’s Revenue Intelligence highlights opportunities and risks that you may otherwise miss. It uses AI to analyse customer data and measure progress towards meeting sales goals.

Revenue Intelligence also offers sales insights in several forms, directly from the dashboard. It automatically sends alerts and recommends what actions to take. Easy-to-understand visuals clearly illustrate sales and forecast trends so you’ll never be in the dark.

In short: You’ll want something that does the calculations and tracking for you, so you can focus on selling.

Achieve your revenue goals

When you understand the difference between gross and net sales and how to calculate each, you get a clearer idea of your total profits, where you might be losing money, and how to adjust, recover, and grow year over year. Using tools and technology to capture important sales data gives you the power to strategize, take action, and make better decisions for the future of your business.