Your new business needs the right equipment to get the job done. You also need to equip yourself with knowledge about how gross sales work and what they mean to your bottom line.
When reviewing your monthly numbers, your gross sales number can make you feel pretty good! It’s satisfying to see the income you’ve made from selling your products or services. However, when you factor in your expenses and other costs of running your business, that gross income number doesn’t tell the full financial picture of your sales at the end of the day.
What’s the difference between gross sales vs net sales? Keep reading to learn more about these concepts and why they’re both critical to your business!
What Are Gross Sales?
Your business’s gross sales are the total amount of transactions within a specific time period. It’s the raw dollar amount of the sales of your goods or services, before applying any deductions.
When publicizing sales or comparing year-over-year sales trends, companies often use the gross sales numbers to make those comparisons. However, it’s critical to understand that your business’s gross income isn’t an accurate representation of your bottom line.
To evaluate the financial health of your business, the more critical metric is your net sales.
What Are Net Sales?
To arrive at your net sales number, deduct the expenses of operating your business. Your company’s expenses include:
- Marketing costs
- Rent and utilities
- Costs to produce your goods
- Discounts applied to sales
- Costs of returned items
Your top-line (or gross) sales number isn’t the amount of money you take home or pocket at the end of the day. To evaluate your company’s growth, your net sales number helps track improvements in efficiencies and cost-savings. Net sales metrics also help you target areas where you can improve the business operations that can help grow your bottom line business income.
Both Numbers Matter!
While net sales numbers are the better indicator of your business success, gross numbers matter too! As your business grows, both the total sales and net sales numbers should increase. If your gross numbers increase, but your net sales stay flat—or decline—it’s time to make adjustments!
- Find ways to reduce costs. If the amount you pay for your office space increases, it might be time to relocate.
- Reduce the amount and frequency of discounts. Discounts take your net income away! Train customers to purchase your services without the incentive of frequent discounts.
- Decrease your production costs. You don’t want to deliver a cheap or poorly made product, but exploring ways to reduce your production costs can improve your net sales numbers.
As you begin to understand the things that influence each metric for your business, you’ll find ways to boost both your gross and net sales!
Define Your Gross Sales vs Net Sales Goals
When planning your business strategy, make sure you define both your gross sales vs net sales goals. Let Strategic Capital help you understand and meet those goals!
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