As a sales manager, you’re no stranger to reports and monitoring specific metrics to measure your team and company’s success. But what particular metrics are you focusing on, and are you leveraging the difference between net sales vs. gross sales to your advantage?
A key component of your job is tracking the revenue your sales team generates. Revenue is one of the primary indicators of a successful sales process and often has a specific team goal attached for the quarter and year. Separating net and gross sales figures from this for further analysis will provide you with more insight into your company’s profitability.
This post highlights the differences between net and gross sales, details how to calculate each, and discusses why and how you can track these essential metrics.
Gross sales is the total income generated from your company’s product and service sales. In other words, it’s the total the company has made from sales before any deductions, such as cost of sales and other expenses.
Sales managers monitoring their team’s gross sales will track this figure over a specific period, usually weekly, monthly, quarterly, and annually. They may also draw up comparative reports showing gross sales generated over the same period in previous years to determine whether their success rate is improving.
While your gross sales amount gives you a high-level view of your overall income over a period, it doesn’t tell you much about your business’s profitability. However, you can use your gross sales figure to help determine other important sales metrics, such as your net sales and gross profit margin amounts.
Gross sales vs. gross revenue
Often used interchangeably, gross sales and gross revenue are not the same thing. We know that gross sales refers to your company’s total income from sales. But gross revenue is the organization’s total income from all sources, not just sales. Therefore, gross sales may be a primary metric for sales managers, whereas gross revenue will be of importance to the company as a whole.
How to calculate gross sales
Calculating your gross sales is easily achieved using the following simple formula:
Gross Sales = Number of Units Sold x Unit Price
In other words, if you were to calculate your sales team’s gross sales over the past quarter, you’d need to know the total number of products sold and the price paid for each.
For example, if a cybersecurity company sold three different types of alarm systems at $35, $60, and $110 each, and 54, 33, and 12 units, respectively, your calculation would look like this:
Alarm system 1: 54 units x $35 = $1,890
Alarm system 2: 33 units x $60 = $1,980
Alarm system 3: 12 units x $110 = $1,320
$1,890 + $1,980 + $1,320 = $5,190
Therefore, the company’s gross sales figure for that quarter would be $5,190.
What is net sales?
Net sales is the remaining sales revenue after subtracting deductions from your gross sales figure. There are three types of deductions to subtract from gross sales to get to your net sales amount, and they are:
Allowances: A reduction in price related to a product or service issue.
Discounts: Special pricing based on criteria determined by the company.
Returns: Reimbursements and costs related to product returns.
This is the metric accountants include in the company’s income statements and sales managers add to their reports. It’s a valued metric because your net sales figure illustrates your organization’s gross sales profit, giving you insight into your business’s financial health.
Net sales vs. net revenue
So, what’s the difference between net sales and net revenue? It’s simple, really. While net sales is your total sales revenue minus deductions, net revenue is a company’s total revenue less its deductions.
In other words, net revenue includes all income received by the company, including sales, investments, interest, and dividends. In contrast, net sales focuses purely on the revenue generated by sales of your products and services.
The net sales calculation formula
Calculating net sales is slightly less straightforward but still not complicated. When setting out to determine your net sales figure for a specific period, your formula will look like this:
Given the formula above, you’ll need to know your gross sales amount for the period, as well as the totals of any allowances, discounts, or returns to establish your net sales amount.
Let’s take a look at an example to illustrate this calculation, sticking with the cybersecurity example we used before. Our earlier example established that the cybersecurity company’s gross sales amounted to $5,190 for the past quarter.
If we were to calculate the company’s net sales over the same period, we’d need to know their allowances, discounts, and returns expenses for that quarter. For the purposes of this example, let’s say those amounts are as follows:
Allowances: $150
Discounts: $475
Returns: $35
With these deduction amounts, the cybersecurity company’s net sales calculation would be:
Net Sales = $5,190 – ($150 + $475 + $35)
Net Sales = $5,190 – ($660)
Net Sales = $4,530
Based on the above calculation, the company’s net sales for the past quarter amount to a grand total of $4,530.
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What’s the difference between net sales vs. gross sales?
Although we’ve defined each term, we have yet to do a proper net sales vs. gross sales comparison to narrow in on the critical differences between them. Knowing the definitions and calculations related to net and gross sales is great, but comparing their core attributes side-by-side can be incredibly helpful and clarifying.
Let’s place these two essential metrics under a microscope in table format to make things easier.
Comparative Feature
Gross Sales
Net Sales
Definition
Total sales revenue before deductions
Total sales revenue minus deductions
Co-reliance
Does not depend on net sales
Depends on gross sales
Formula
Number of Units Sold x Unit Price
Gross Sales – (Sum of Deductions)
Deductions
Nothing deducted
Allowances, Discounts, and Returns deducted
Use
Sales quota benchmarking
Company reports and income statements
Why you should track net and gross sales
Tracking your net and gross sales over periods significant to your operations can offer several benefits, including these:
Measure sales performance accurately
Your gross sales figures may present a sizable and more attractive number than your net sales amount, which is fine for sales team targets and motivation. However, the gross sales metric is not a true reflection of sales revenue.
Assessing both gross and net sales figures gives you a more holistic and accurate overview of sales performance. You can then better determine where there might be room for improvement and optimize accordingly.
Improve business decision-making
Evaluating your gross and net sales figures gives you deeper insight into your profitability and margins, which helps leadership make more informed decisions. These metrics offer a high-level view of revenue, profit, and expenses, allowing stakeholders to pinpoint inconsistencies quickly.
Net sales, in particular, can provide greater clarity for sales process strategizing and planning. It plays a significant role in generating more accurate sales forecasts for improved decision-making promoting business growth and success.
Conduct a competitive analysis
If possible, comparing your net and gross sales figures against those of your competitors can provide valuable information about your market and your position within it. Revenue, deductions, and profit margins will differ per industry and business, so it’s best to ensure your analysis includes businesses similar to yours.
Conducting a comparative assessment of net sales figures can help you identify whether your sales process needs some tweaking or is working well. For instance, if you notice that your net sales is lower than that of your direct competitors, you may need to reevaluate your pricing strategy, product offering, or sales approach.
Motivate your team
Everyone knows a sales rep’s job is hard work regardless of the product or service. As a sales manager, sales team motivation plays a major role in moving things forward. Setting targets using gross sales numbers is a popular way to go about this.
However, it may be more beneficial to both your company and team to include net sales targets to better understand sales team performance and its benefit to the business. For example, a high gross sales amount may look impressive, but if allowances, discounts, and returns numbers are high, the resultant net sales amount may prove less lucrative.
How to track gross and net sales
Tracking your gross and net sales manually is simple enough, but depending on the size of your organization, it could prove labor-intensive. Thankfully, plenty of digital tools are available to help you determine these all-important metrics.
Because the bulk of your sales process and activity happens within your CRM system, investing in a tool that integrates seamlessly with it makes sense. With advanced reporting and business intelligence tools connected to your CRM, you can take advantage of custom reports and real-time insights for quick decision-making.
Opting for a solution that offers automated calculating and reporting is best, as this frees up time for you to focus on your sales process and team.
Leverage Nutshell for easy net and gross sales tracking
Tracking gross and net sales and revenue is an absolute must for evaluating sales performance. However, these aren’t the only metrics you need to track to ensure your sales team and process are as effective as possible. You need a tool that offers comprehensive sales reporting capabilities to ensure you have all the data you need to boost sales and revenue.
Nutshell is the all-in-one CRM system that provides best-in-class features, including robust reporting and analytics capabilities, to help improve sales team productivity and profitability. Create custom reports to align with your specific business requirements and have them generated automatically when you need them.
Track the metrics that matter most to your department and business, including:
Gross sales
Net sales
Gross revenue
Net revenue
Klantlevensduur (CLV)
Retention rate
Opzeggingspercentage
Sales per rep
Kosten voor klantenwerving (CAC)
Omrekeningskoers
New leads
Average purchase value
Number of sale activities
Upsell- en cross-sell-percentages
Lengte verkoopcyclus
En meer
See what Nutshell can do for your organization. Sign up for a free trial today—That’s 14 days on the house, with zero credit card required. You can also give our expert team a call to discuss your needs and discover how Nutshell can help your business grow.
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