Understanding Company’s Net Sales And How To Calculate It

net sales and how to calculate it

Have you ever wondered what your sales might be telling you? Do you analyze it timely? You must have developed a Sales key results for your department, but what if they do not bring the results you want. There are some elements that can show you an organization’s revenue, net sales and total profit and losses after the sales.

It will be easy to understand the topic if you already know about the terms. But if you are a startup, understanding these terms will immensely help you in defining the business’s effective sales approaches. Because according to Forbes, customer experience value is everything, an organization needs to drive the business, which can be supported by the fact that 84% of the organizations increased their earnings by working on the customer experience alone.

What Do You Mean By An Organization’s Net Sales?

The final revenue left after the subtraction of cost adjustments, cost reductions, and refunds gross earnings is regarded as the net sales of the organization. The subtraction can be incentives and replacement to the customers on the product purchase.

Net Sales = Gross Sales – (Returns + Discounts + Allowances)

These total product proceeds can be your company’s profit or loss. Analyzing these terms will assist you in finding loopholes in the organization’s product selling approaches and product quality issues. The organization can also observe the common permanent defects, the effect of a price cut, and damages in the product left during the quality check.

Net sales fluctuations represent the effect on the company’s profit margin and not just the final income revenue gained by the company.

The estimation of this amount for an organization also helps in developing an income statement. For understanding the income statement, refer to the section with the common terminologies needed to understand the net amount better.

Let us understand the factors that can affect the margin of net sales for an organization.


By Which Factors Net Sales Can Be Affected?

Earlier in this article, we talked about the general definition and equation for net selling of any organization. As an owner of the organization, it is important to understand the factors that affect the income and marketing of the company. The reductions are mentioned as follows.


Have you ever shopped or just visited any virtual store? Obviously, one can never touch the items shown there but can visualize it. Based on the 3D images and augmented reality, one places the order and waits for it.

Is there any solution if the expectations towards the product aren’t fulfilled? The product you order is either damaged or delivered wrongly. The customer might be willing to purchase the product regardless of the defects experienced but at a reduced price rate. Buyers can also claim a reduction to half the said price of the product.

Supermarkets or offline stores also use this technique of reducing the price, and this is called an allowance. A company with core values of customer satisfaction should offer such schemes to the buyers and resolve their various queries as soon as possible.

This would affect the earnings of the business for sure, but not doing this can cost a customer. No business would face the loss of a single customer. Better to have a long and definite quality check period so that the sales don’t get affected by the low quality. Though it will take a longer time, it can guarantee defect-free goods up to a greater extent.


Have you watched Jethalal being tired of asking his customers to complete their payment? This probably can be the situation of most of the owners, especially after the lockdown. Here’s one solution to the problem.

During the order booking, you can offer a fair discount to the customers in return for completing the payment as soon as the product is delivered. This way, you can benefit the customers and can receive the payment immediately.

For example, you are supposed to deliver a refrigerator costing 30,000 ₹. By asking the customer to pay the amount immediately, you can offer him fast and safe delivery with a discount of 2%. The discounts you give can also include limited offer coupons, festive and holiday offers, and other giveaways.


Let’s take the example of online stores only. After ordering and waiting for the product, if your desire meets the product, perfect. But there are few cases where the customers have not received the product in excellent condition. If not satisfied, the customer asks to return the product back to the store.

In such cases, if the store has the policy, you can claim your money back using the money-back guarantee they provide. But for a limited period of time after the order delivery.

In case if the same product that your customer returned is intact, it can be sold to another customer. But if the product is damaged, you have to bear the charges. And putting your customer’s requests first shows the morals your company works on.


Current Trends Related To Organization’s Sales

  • For any salespeople, a total of 8 interactions is needed to finalize a meeting with the prospect.
  • 77% of sales professionals chose high-quality leads over the total quantity of leads.
  • Since the COVID pandemic, 70% of sales leaders say that their revenue growth comes from existing customers.
  • Every 6 in 10 prospects wishes to discuss product pricing with the salesperson on their first call.
  • About 50% of the sales are done after the 5th call with the prospect, but a majority of the sales representatives let go after two interactions.

What More You Need To Understand About Net Sales?

Understanding net sales aren’t easy for any person, but it is essential for the owners as it helps in calculating their organization’s income statement. But then what is the income statement of the organization?

Income Statement

An income statement of any organization is the summary of its revenues and expenses measured. One can easily analyze their market position and product sales from this report. The statement also helps in the observation of profit and loss made after the total sales for a particular period of time; thus, it can also be regarded as a profit or loss statement.

The income statement of an organization is important to generate as it shows if the organization can convert its costs into income (revenue) and in-all measures the profitability related to the total product sold for a particular time. Based on the listed profits or loss, a company can decide whether it can invest in something new or not. One gets to know that they should prepare a plan to gain more yield.

Gross Sales

These amounts are considered to be an organization’s total income made from the product selling without considering the factors impacting net sales. Removing these factors from the gross amount results in net sales of any organization.

Gross sales cannot show the actual conversion of product proceeding into revenue, and thus the addition of the mentioned elements are reduced to generate the net earnings. This represents the effect of the company’s selling techniques. Comparing both, if the result is straight or growing at an increasing rate, it is time to change approaches and strategic management of product trading and implementing techniques that will work.


Summing It Up

To observe the rises and falls in business marketing, it is essential for any organization to look after its selling outputs and develop the income statement. Both net and gross amount are essential to generate as we saw gross sales wouldn’t give you much knowledge about the sales, whereas net sales can. But net sales cannot be calculated without gross one.

Grow your business with factoHR today

Focus on the significant decision-making tasks, transfer all your common repetitive HR tasks to factoHR and see the things falling into their place.

Fill details to request free trial

Request Free Trial