09. May 2017 · Comments Off on Net Sales and Gross Sales · Categories: Finance

If you’ve started a business, you probably have read a lot of information on what you have to do with it. Finding a building, having a business plan, getting personal loans no credit check between 5% and 6%, and finding a bookkeeper are probably all on the list of things you have to do. But, have you looked at your tax information? Can you actually get personal loans no credit check between 5% and 6% without too much issue? This is all really overwhelming for some of us to try and work out.

When you start your business journey, you may have seen two terms that you never thought of before: Gross sales and net sales. You may also see these terms if you hold stock in a company and are reading their annual sales reports. What are they? What’s the difference? Aren’t all sales the same?

Gross sales are the sales that are yucky. No, no. Bad joke. They’re the total amount of sales before any money gets taken out. Basically, it’s the amount of money you would make if certain things didn’t cause you to sell an item for less. 

Net sales, on the other hand, is the amount that you actually put into your pocket. This accounts for any discounts that customers may get, the cost of actually getting the product, taxes that are taken out for the product, and anything else that goes into the process of selling the product.

To make this a little more clear, let’s talk about this in more concrete terms.

Say that I own a company that makes a product, called Product A. I sell Product A for $20 including shipping, at least that’s what I normally sell it for.

In one month, I sell 10 of Product A. My gross sales for that month are $200, no ifs, ands, or buts. But, my net sales are a little different. Here’s some information that you’d need to know to figure out what I my net sales were for the month.

–    Manufacturing cost for each 1 of Product A: $5

–    Shipping cost for each 1 of Product A: $5

–    3 customers had a coupon for Product A for $2.

–    1 customer returned 1 of Product A.

So, my net sales for that month would take all of this into account. Subtract $50 for manufacturing, $50 for shipping, $6 for coupons, and $20 for the one return and you get the total net sales for that one month of $74.

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A lot of times, we don’t think about those things when we’re buying a product. We complain that how much we consumers pay is too high for a product that cost $5 to make. But when you take everything into account, a lot of times, that company really isn’t making a lot off of that one item. And this example was overly simplified; I didn’t count taxes, bills for the building I’d make Product A in, paying employees that help me make Product A, and other costs. It takes more than just the stuff used to make the product.

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