The Battle of the Sales, Net Sales vs Revenue Sales
11 mins readOct 26, 2022
You must understand subtleties when operating SaaS business regarding net sales vs revenue sales. These subtleties are essential to make the best business decisions.
Here is the quick definition of net sales vs revenue sales—stating their differences.
Net sales are the complete amount of money a business brings in from its product or service minus any refunds, discounts, or returns. Revenue sales, on the other hand, is the total amount of money that a business generates from its product or service, regardless of whether there are any refunds, discounts, or returns.
Which one is better? Well, it depends on what you’re looking at. If you’re looking at the bottom line, then net sales will probably be more important to you. But if you’re looking at overall growth and scale, then revenue sales might be more important.
Here’s a quick example: Company A has $100 in net sales, and Company B has $120 in revenue sales. However, Company A also has $10 in refunds and $5 in returns, while Company B only has $2 in refunds and $1 in returns. In this case, even though Company B has total money coming in (revenue), Company A has more profit because they have less money going out (net).
Of course, this is just a simple example, and many factors can affect which number is more important. So take some time to carefully analyze about which metric about net sales vs revenue sales makes more sense for you and your company before making any decisions! It depends on your specific business and what you’re trying to achieve.
Net sales vs revenue sales have their differences—it means they are not the same.
Revenue is the whole amount of money that a business has earned in a given period of time, while net sales is the whole amount of money earned after some deductions have been made. The principal deduction that is made from revenue to get net sales is the cost of goods sold (COGS).
COGS includes all the amounts associated with producing the goods or services a company sells. This would include things like materials, labor, and shipping. COGS do not count indirect expenses, such as marketing or administrative costs.
The formula for calculating net sales is:
Net Sales = Revenue - Cost of Goods Sold
For example, let’s say that a company has $100 in revenue and its COGS is $50. This means that its net sales would be $50.
It’s important to note that net sales can also be negative if a company’s COGS exceeds its revenue. In this case, it would mean that the company had an operating loss for the period in question.
As a SaaS business owner, you’re always looking for ways to increase sales and grow your business. Net sales is one metric that can help you gauge your success.
Measures your company’s overall sales performance
Net sales can help you identify areas of your business that need improvement.
It’s a helpful metric for evaluating your marketing efforts.
Net sales can give you insight into your customer’s behavior.
It can help you track your progress over time.
Net sales can help you benchmark your performance against competitors.
It’s a valuable metric for investors.
Net sales can help you manage inventory levels.
It can help you make pricing decisions.
Net sales is a key metric for any business owner looking to increase sales and grow their company.
Calculating gross sales gives you insights into the health of your business. There are several ways to calculate gross sales, so we’ll walk you through a few of the most common methods.
One way to calculate gross sales is by taking your total revenue and subtracting any returns or refunds. It will give you your net sales, which is a good starting point for calculating gross sales. To get your total revenue, simply add all the money your company has brought in from sales (including online and offline sales). From there, subtract any returns or refunds that have been issued. It will give you your net sales figure.
Another way to calculate gross sales is by taking your total number of units sold and multiplying it by the average selling price per unit. This method is often used by businesses that sell products, as it provides a more accurate picture of how much product they’ve actually sold (rather than just how much revenue they’ve generated).
To calculate this, simply multiply your total number of units sold by the average selling price per unit. For example, if you sold 100 widgets at an average price of $10 per widget, then your gross sales would be $1,000.
Improves your bottom line
Tracks your progress
Allows you to reinvest in your business
It helps you attract new customers
It enables you to retain existing customers
Supports business growth
It allows you to generate leads
It supports you improve customer satisfaction
It allows you to create a competitive advantage
Net sales is the total amount of sales generated by a company minus any returns or allowances. On the other hand, revenue is the amount of money a company receives from its sales.
So, if a company has $100 in net sales and $90 in revenue, that means that $10 of the sales were returned or allowed for some reason.
Let’s look into the example to understand the difference between the two.
XYZ Corporation has the following sales for January:
January 1: $5,000
January 2: $7,000
January 3: $6,000
January 4: $8,000
January 5: $9,000
January 6: $4,000
January 7: $3,000
The total net sales for the month would be $5,000 + $7,000 + $6,000 + $8,000 + $9,000 + $4,000 + $3,000 = $46,000.
However, let’s say that on January 2nd, one of the customers who bought something on January 1st returned their purchase. The total revenue for the month would then be:
$5,000 + $7,000 + $6,000 + $8,000 + $9,000 + $4,000 + $3,000 - $1,000 = $45,000.
As you can observe from the above example, net sales vs revenue sales are not the same. This is because there was a return on one of the sales.
Again, these two terms stand widely apart from each other or in other words, they are not the same.
Let’s see on what grounds they differ from each other and why is it necessary for you to understand the differences to implement on your business?
Net sales is the total revenue from all sales of goods and services, minus any refunds or discounts. Gross profit is the total revenue from all sales of goods and services minus the cost of goods sold.
The primary difference between net sales and gross profit is that gross profit includes the cost of goods sold, while net sales do not. The cost of goods sold consists of the cost of raw materials, manufacturing, and shipping. So, if your gross profit is higher than your net sales, your company is making a profit after all expenses are paid.
Another difference between net sales and gross profit is that net sales can be used to calculate your company’s net retention rate. Net retention rate is the percentage of customers who stay with your company over a period of time. To calculate it, you take the number of customers at the end of a period and divide it by the number of users at the start of the period. Then, you subtract the percentage of customers who cancel their service from the percentage of customers who stay.
For instance, let’s say that you have 100 users at the beginning of a year and 90 users at the end of the year. That means that your retention rate would be 90%. But, if 10% of those customers cancel their service, then your net retention rate would be 80%.Is total revenue the same as net sales.
There is a wide difference between the two.
Gross revenue is the total amount of money your business brings in from sales of goods or services. This includes all money that’s earned before any expenses are deducted.
Net sales, however, is the total amount of money brought in from sales after deducting any returns, allowances, or discounts. In other words, it’s your gross revenue minus any money refunded to customers or taken off the sale price.
Well, gross revenue is a good indicator of your business’s overall health. It shows how profit your business is bringing in and can be used to compare year-over-year growth.
Net sales, however, is a better indicator of your business’s bottom line. This is because it shows how much money your business makes from sales after all expenses are considered.
Knowing both net sales vs revenue sales is essential for understanding the health of your business. But if you had to choose one, net sales is the more important number to focus on. As it shows you how much profit your business is actually making from its sales.
Having in-depth knowledge of the key differences can help you make the best business decision.
With the world being so fast and the technology backing up every wonderful solution, do you still need to do all the calculations manually? And would these calculations be accurate? Knowing the difference between net sales vs revenue sales will do the job for you as a business person. Let Churnfree handle the rest of the math’s for you.
Now you know that accuracy is key to everything good happening in the business world today. Therefore, let the Churnfree tool maintain 100% accuracy for you while you can focus on more important business matters.