Date created: Oct 7, 2020 • Last updated: Oct 8, 2020
What is Net Sales?
Net Sales consists of gross sales less any discounting, products returns, or damaged products. It is an accurate measure of the amount of money brought in by a business.
How to calculate
A business generates $500k in annual revenue, but incurs $10,000 in returns, $5,000 in damaged goods, and $20,000 in discounting. The net sales for that year is therefore $465k.
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More about this metric
Net Sales consists of gross sales less any discounting, products returns, or damaged products. When compared to gross sales, it is a more accurate measure of the amount of money brought in by a business because it accounts for money lost to discounting and returns.
When a sale is made, the money earned is added to gross sales, or revenue, but this figure cannot be taken as a final measurement of the money generated by the business. Customers are often able to return damaged products or request refunds for products or services. Net sales subtracts these returns, as well as any discount applied on the product, from gross sales. This number gives a realistic picture of business performance by indicating the true amount of money generated by the business.
It is important to track net sales because it can indicate the success of sales strategy and overall company performance much better than gross sales. Net sales will decline if too many returns or discounts take place, while the revenue might appear deceptively constant. Tracking both revenue and net sales will therefore give the true picture of sales strategy and performance, quality assurance, and customer satisfaction.