What is Net Sales?
Net sales is the amount of revenue a company earns from selling goods and services, minus returns, allowances, and discounts.
It's a crucial metric for e-commerce sellers because it shows how much money they're making after accounting for all the costs associated with selling online.
Why is Net Sales Important?
It gives a clear idea of how much money you're actually making after taking into account all of the costs associated with selling online.
You can use this information to track your business's performance, make pricing decisions, and even find areas where you can cut costs.
Net sales are a key metric for investors and lenders.
When considering investing in or lending money to an e-commerce business, it is important to see that the business is generating a healthy amount of net sales.
How to Calculate Net Sales with example
The formula for calculating net sales is:
Net Sales = Gross Sales - Returns - Allowances - Discounts
Net Sales = (Total Units Sold x Sale Per Unit Price) – Sales Returns – Allowances – Discounts.
Net Sales = (25,000 x $20) - $40,000 - $60,000 - $20,000 = $380,000.
Net Sales Example
Suppose an e-commerce seller sells 100 widgets at $10 each. The total sales amount would be $1,000. However, if 10 of those widgets are returned, the net sales would be $900. This is because the seller would have to refund the money for the returned widgets.
Net Sales vs. Gross Sales
Gross sales refer to the total amount of money that a company earns from all sales, including returns, allowances, and discounts.
On the other hand, net sales are calculated by subtracting returns, allowances, and discounts from gross sales.
Net Sales vs. Gross Profit
Gross profit is the amount of money a company earns after deducting the cost of goods sold from gross sales.
Net sales are calculated after subtracting returns, allowances, and discounts from gross sales. Consequently, net sales are always lower than gross profit.
Conclusion
By understanding what net sales are, how to calculate them, and what they represent for their business, sellers can make informed decisions about pricing, marketing, and operations.