Net sales and gross sales are two measurements that vendors can use to weigh the performances of the sales sides of their businesses. These forms of metrics serve different purposes and together give vendors perspective on the success of their sales operation.
Gross sales simply measure the total sales that a vendor enjoys during a specified time frame. The gross sales tally is focused on the value of the sales a vendor makes, regardless of mitigating factors. For that reason, gross sales does not include discounts that customers received for a purchase, allowances for missing goods or customer returns, according to Investopedia.
The calculation for net sales begins with gross sales and then subtracts the mitigating factors to individual sales that gross sales leave out, including discounts, returns and the costs of damaged items, according to Investopedia. Official financial statements use net sales because they reflects a company's sales more precisely, narrowing in on the money that a vendor will actually receive.
Gross Sales Value and Drawback
Excluding sales deductions gives gross sales its biggest value because it isolates the performance of sales. It gives vendors a clear idea of how well overall sales are doing without concern for other factors, enabling them to see what is popular with customers and what is not and to compare how well their sales' performance compares to previous time frames. Gross sales' largest drawback is that it cannot provide a broader perspective on sales beyond the basic invoice numbers.
Net Sales Value and Drawback
Net sales, meanwhile, does not have the isolating power of gross sales. And while gross sales become quickly concrete, net sales can require adjustments later, such as when a return is made on an item well after the sale was made. Still, net sales offer the most perspective for vendors, letting them know how well their sales are doing in a wider context and factoring in critical deductions that can reduce revenue considerably.