Net Sales
Definition
Gross sales minus returns, refunds, discounts and allowances. It is the revenue you actually keep, and the number margins should be measured against.
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Formula
Net Sales = Gross Sales − Returns − Refunds − DiscountsPlatforms love to show gross sales, but net sales is what your business actually earned. Every margin, ratio and forecast should start from it, otherwise the numbers look better than reality.
Booking returns and discounts as their own lines, rather than burying them, also shows you how much revenue leaks out after the sale. Watch for: a rising return rate, which quietly shrinks net sales even while gross sales grow.
Example
$120,000 gross sales with $9,000 returns and $6,000 discounts gives $105,000 net sales.