When you run a business, it's important to keep track of revenue and sales. In the retail industry, one of the most important metrics to look at is yoursgross sales.
Since running a retail store requires a lot of overhead, thecost of goods sold, construction management and shipping, as well as rent and additional costs forphysical stores- Knowing your gross sales is key to staying afloat.
This article explains gross sales, how they're calculated, and what they can tell you about your business.
- How to calculate gross sales
- Gross Sales x Net Sales
- Understand the gross sales formula
- Example of determining gross sales
- What can gross sales tell you?
How to calculate gross sales
The formula for calculating Gross Sales is Total Units Sold x Original Selling Price = Gross Sales. A company's gross sales are the total sales of all of its products and/or services over a given period of time. The number referred to as revenue represents a company's total revenue minus any deductions, returns, or refunds.
Gross Sales x Net Sales
Now that we know what gross sales is, let's talk about your cousin,Liquid Sale. Together, these metrics give business owners a bird's eye view of their business progress.
Gross sales shows the total sales of the company while net sales shows the total profits.
gross sales formula
You can calculate your gross sales using the following formula:
Total Units Sold x Original Selling Price = Gross Sales
There will be no rebates, rebates or the likeReturnsincluded in this number. The aim is to get an overview of your entire business turnover within a selected period of time.
For example, to see how your business is doing in a specific month, you can look at the monthly and annual gross sales.
net sales formula
You can calculate your net sales with the following formula:
Gross Sales - Discounts - Refunds - Returns = Net Sales
Deduct these three items from your gross income:
- Discounts for early payment of invoices for bulk orders:Sale or promotional discounts are excluded.
- Sales Bonuses:Also called discounts, are reduced sales prices due to defective products. Products may be offered for sale if defects are found in store, but this also applies if customers return faulty products. If they decide to keep the product, you can refund part of the purchase price or they can return the entire order.
- Refunds and returns:This includes all product returns. The customer may have been disappointed due to the quality of the product,delivery delays, received wrong items or the product does not meet your expectations.
You can use net sales or net income to calculate your company's profit. Gross Sales is the sum of all sales while Net Sales subtracts all rebates, rebates, and returns to calculate your business profit.
Understanding the two numbers is critical to your financial statements. However, gross sales give you a clear picture of how your business is performing overall and how many sales transactions are actually taking place.
Keep track of your finances
Shopify POS makes it easy to generate reports and review your finances, including sales, returns, taxes, payments, and more. View your financial data for all sales channels in the same easy-to-understand back office.
Understand the gross sales formula
You've already learned the basic formula for gross sales, but let's dig deeper so you know exactly how to calculate it.
First you have to decide what period of time you want to measure. If you look at the first quarter of 2022, collect all the sales made during those three months (January to March). When calculating your gross sales, only consider the original sales price. Ignore any discounts or promotions you've run.
Find your exact sales figures by logging into yourPoint-of-Sale-Systemor online sales panel. To keep track of progress, it's also smart to track this in a separate spreadsheet.
If your POS dashboard has discounts and rebates, it can already calculate net sales for you, so you have to figure it out yourself.
Calculate the exact quantity of each product sold. Perhaps you sold 50 units of Product A and 75 units of Product B. Product A costs $299 and Product B costs $199.
So your gross revenue is (50 x $299) + (75 x $199) or $29,875.
If you dig a little deeper, you'll find that 10 units of Product A is 25% off due to the upfront payment, which you use to calculate your net sales.
For example, you would take 25% of $299 ($74.75), multiply by ten ($747.50) and subtract from your gross sales ($29,875 - $747.50) to get net sales for the quarter of 29,127, $50 to display.
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Example of determining gross sales
Let's look at a real-life example. Using an e-commerce business as an example, we'll show you what that would look like for your own retail business.
Our made up case study is based on the Shopify storeetc.. On their website we can see that they sell organic, vegan and paleo snacks.
In the list below, we can see that nomz offers various products. We'll examine just a few of their self-proclaimed bestsellers in this case study.
The company offers four best-selling products on its homepage: Energy Bites Assorted Box, Daily Nourish Superfood Mix, Ultimate Variety Pack, and a 12-pack of its Nomzicles.
To see if sales are steadily increasing, let's compare sales proceeds for March 2022 with sales proceeds for February 2022. First we need to determine how many of these top four products have been sold.
Suppose the numbers look like this:
- Energy bite can - 127
- Nutritional Superfood Daily Blend – 346
- Ultimate Strain Pack – 72
- Names - Pack of 12 - 298
Next, we need to determine the quantity of products sold at their original retail price.
- Energy Bite Out Box – 127 x 33 $ = 4.191 $
- Nutritional Superfood Daily Mix – 346 x $56 = $19,376
- Ultimate Variety Pack – 72 x 115 $ = 8.280 $
- Nomzikel – 12er Pack – 298 x 40 $ = 11.920 $
Total gross sales for March 2022 were $43,767. If we compare them to the gross sales for February and January, we see fluctuations in gross profit. From these totals we can subtract deductions like rebates, rebates and returns to see what the net sales were.
Knowing how to calculate the metrics yourself is a great way to get a better idea of what the numbers are saying.
💡DICA PRO:Only Shopify POS brings your online and retail data together in a single back office: customer data, inventory, sales and more. To seeeasy to understand reportsto identify trends faster, seize opportunities and drive your brand growth.
What gross sales can tell you
Why should you care about metrics like gross sales? That's because gross sales figures can help you find out a variety of things about your business.
Income during a given period
As mentioned, Gross Sales shows your total sales for a given period, whether it's last month, quarter, or year.
You can track growth trends by looking at data like this and understand the ebbs and flows in your industry to helpdemand forecast. Most industries experience periods of low sales throughout the year. January tends to be the slowest month for the retail industry.
Depending on your product offerings, this may be different for you. If you know your income during this time each year, you can plan for itslow retail months.
consumer buying trends
Calculating your gross sales can also give you a deeper insight into how many units of each product were sold over a given period of time. This information can give you a good idea of consumer preferences and buying trends. You can also see if the most popular products change with the seasons.
Make a note of your most popular products so you can better serve customers with similar products. If you have a product that just isn't selling, you can move it to the front page of your website to get more exposure and showcase it on thewad of moneyor offer discounts to increase sales.
Knowing your gross sales helps you understand how products move around your business, how much revenue your store generates, and what your customers are buying. Be sure to track these metrics on a monthly, quarterly, and yearly basis so you know where your business is.
💡DICA PRO:To see how much a customer spent shopping in your store and online with you, select the customer's profile in Shopify POS.
Calculate the gross sales of your shop
To measure success, take a close look at your company's sales numbers. Calculate your gross sales, net sales and profit. Using the formulas in this article, you can get a clear picture of your company's total earnings and cash flow.
Based on these numbers, set realistic sales targets for your retail store. Setting goals can inspire your team to work aggressively toward achieving them, thereby maximizing business growth.
Increase in-store sales with Shopify POS
Shopify POS has all the tools to help you convert more store visits into sales and increase sales. Make more relevant product recommendations, convert abandoned store sales to online sales, and track store and staff performance in an easy-to-understand back office.
Frequently asked questions about gross sales
What does gross sales mean?
Gross sales are the total amount a business earns from the sale of its products or services, before taxes, costs, and expenses are deducted.
How is total gross sales calculated?
Total gross sales can be calculated by adding up the cost of all goods or services sold during a given period. This amount does not take into account discounts, returns or rebates.
What is the difference between gross and net sales?
Gross sales refers to the total amount of revenue generated by a business before any deductions such as taxes and expenses are made. Net sales refers to the total amount of revenue generated by a business after deducting all deductions such as taxes and expenses.