Gross revenue, also known as gross sales, represents the total income a company earns from sales of its products or services before any expenses are deducted. It provides a broad view of the company’s incoming funds without considering costs yet.

How to calculate gross revenue

Gross Revenue = Sales Revenue (Price × Quantity Sold) + Other Revenue Streams

For instance, if Johnny’s bakery sells 1,000 cakes at $20 each, the gross revenue would be $20,000. This figure reflects all sales transactions before any deductions are made.

Net revenue, sometimes referred to as net sales, is the amount of money a company earns after subtracting returns, allowances, and discounts from the gross revenue. It represents the revenue left after accounting for the cost of doing business.

How to calculate net revenue

Net Revenue=Gross Revenue−Cost of Goods Sold (COGS)

For Johnny’s bakery, if returns amount to $2,000, discounts total $1,000, and allowances are $500, subtracting these from the gross revenue of $20,000 gives a net revenue of $16,500.

Gross revenue is the total sales figure before any deductions and serves as the top line of the income statement. Net revenue, on the other hand, reflects the actual earnings after all deductions, representing what the company takes home.

And that’s it! This overview should provide a solid understanding of the difference between gross revenue and net revenue, highlighting their distinct roles in financial analysis.