Open any sales report and two headline figures sit next to each other: gross sales and net sales. They are several euros apart, both are correct, and neither one is the revenue a margin should be computed on. Gross sales is the ticket value of what was ordered before discounts and returns. Net sales takes those off. What neither of them does is take out the tax, which in a European store is roughly a sixth of everything the customer paid, so a merchant who computes a cost percentage against either figure is measuring against money that was never theirs. This post is the three figures, in order, and which one belongs where.
- Gross sales is the ticket value of what was ordered, before discounts and before returns.
- Net sales subtracts discounts and returns, and still contains the tax.
- Net revenue, the figure a P&L uses, is what remains after the tax comes out as well.
- Shipping charged sits differently in different views, which is the third thing to check before comparing anything.
Gross sales: the ambition figure
Gross sales measures what everything would have brought at its ticket price. It is close to the concept a statement calls gross merchandise value, and it is the largest number available, which is why it appears in so many screenshots.
It is a real measure of activity and a poor basis for any decision about money, because it includes discounts you granted, refunds you issued and tax you collected for somebody else. A store whose gross sales are up while its bank balance is flat has usually discovered exactly one of those three.
Net sales: closer, and still not it
Net sales removes discounts and returns, which is genuine progress: it describes what customers actually paid for what they actually kept. That makes it the right figure for questions about demand, and it is the one most operators mean when they say revenue in conversation.
The problem is the tax. VAT is still inside, so a cost measured against net sales looks smaller than it is by the tax rate, and every margin computed from it is flattered by the same amount. On a nineteen percent rate the distortion is around sixteen percent of the figure, which is more than most stores' entire profit.
| Figure | Contains | Good for |
|---|---|---|
| Gross sales | ticket price, before discounts and returns | measuring activity |
| Net sales | after discounts and returns, tax still in | measuring demand |
| Net revenue | tax out as well | every margin and cost ratio |
Getting from one to the other
The bridge is short and has to run in the right order: take the ticket value, remove price reductions and discount codes, add the shipping you charged, then remove refunds, and only then divide out the tax. Doing the tax before the refunds overstates both what you owe and what you kept, because a refunded order hands its tax back too.
A gross to net revenue calculator walks that bridge on your own figures in a couple of minutes, which is worth doing once simply to see the size of your own gap between the headline and the truth.
The shipping question nobody asks
Shipping charged to the customer is treated differently in different views, and the difference is easy to miss because the amounts are small enough to look like rounding. On a store that charges for delivery it is real revenue and belongs on the revenue side, where it can be compared against what shipping actually cost.
Netting it against the carrier bill so that both disappear is the tempting shortcut, and it hides two facts at once: that most stores under-recover delivery, and that a few over-recover it on small baskets. Neither is visible until both halves are on the statement.
Why the gap is bigger than people expect
Stack the three deductions and the distance from the headline to the usable figure is rarely under a quarter. Discounts take a few points on most catalogues, returns take several more on anything sized or fitted, and the tax takes roughly a sixth of whatever survives. A store looking at gross sales is looking at a number about a third larger than the one its costs should be measured against.
That is also why cost percentages quoted between merchants are so often incomparable. Two stores can report the same cost of goods share and be describing completely different businesses, simply because one measured against a figure with tax in it and the other did not.
Which figure to quote, and to whom
Use net revenue for anything involving margin, cost ratios or break-even, because it is the only denominator that makes cost percentages comparable. Use net sales when talking about demand, campaigns and basket sizes with people who do not have a tax perspective. Use gross sales when somebody explicitly asks what the catalogue would have brought at list, which is rarely.
And when two reports disagree about a month, check which of the three each one is showing before assuming anything is broken. That single question resolves most such cases, and it takes about thirty seconds.