Net Sales vs Revenue: What Is the Difference?

Net Sales vs Revenue: Key Insights

• Key Metrics in eCommerce: Net sales and revenue are two fundamental metrics in eCommerce, crucial for evaluating a company's performance and guiding improvements.

• Net Sales vs Revenue: It is calculated by subtracting returns, allowances, and discounts from gross sales, while revenue encompasses net sales and additional income from other eCommerce activities and non-eCommerce sources, providing a broader measure of total earnings.

• Competitive Advantage: Strong performance in both net sales and revenue is key to remaining competitive in the eCommerce market and attracting long-term investment opportunities.

When it comes to measuring performance in eCommerce, two metrics are fundamental to understanding and improving a company's performance: revenue and net sales.

It can be confusing when financial reports use similar terms, such as net sales, revenue, or total net sales, to describe the similar concepts. Learn about these terms and the differences between them to better understand their importance in the eCommerce industry.

What are Net Sales?

To calculate eCommerce net sales, returns, allowances, and discounts are subtracted from eCommerce gross sales. It can be summed up in a single calculation formula:

The terms may be defined as below:

• Gross Sales: Total unadjusted sales before discounts, allowances and returns are taken into account. This covers all types of sales, such as cash, credit card, debit card, and trade credit sales in eCommerce.

• Returns: Refers to merchandise that customers return, resulting in a refund of payment. Gross sales are reduced by the amount refunded due to returns.

• Allowances: Represents discounts offered for defective or damaged merchandise. Gross sales are reduced by the amount of the allowance given to the customer.

• Discounts: Offered as a reward to customers who pay by a certain date and meet the terms of the promotion. Rebates reduce the invoice balance. If a company's gross sales differ significantly from its net sales, this may indicate higher discounts or excessive returns compared to industry standards.

What is Revenue?

Revenue, also called total net sales, includes sales beyond the eCommerce sector. A simple formula to calculate is:

Based on the chart, it can also be calculated as follows:

Other eCommerce net sales in this case means net sales generated outside online stores such as amazon.com. It covers things like third-party services, subscription services, and advertising services.

Meanwhile, non-eCommerce revenue comprises revenue generated offline, primarily in physical stores.

The Difference Between Net Sales and Revenue

The main difference between net sales and revenue lies in the structure of revenue, also known as total net sales. It can be broken down into seven parts that ultimately make up a company's total revenue.

The first and most important part is the gross sales obtained exclusively through eCommerce. By subtracting values, eCommerce net sales are filtered out, and by adding values to net sales, overall net sales are obtained.

Net Sales vs Revenue: Closing Thoughts

The importance of these metrics in eCommerce, and in general, is essential to ensure competitiveness. Metrics such as net sales and revenue provide a common ground on which to compare a company's performance with others.

At the same time, they provide a basis for companies to make informed decisions to improve their financial performance. In addition, good performance on these measures can attract investment, which ultimately contributes to long-term success.

Sources: ECDB, secondary sources in the referenced articles.