Quick Guide to Gross v Net Revenue | for Ecommerce Sellers

But here's the thing, running an online business isn't free. There are costs involved. Let's assume that you have discounts, returns, and other associated costs that reduces the amount of water in the bucket. You might also receive some extra water, or revenue, in the form of customer paid shipping or other fees that you pass along to the customer.

Now, once you subtract and add up all of that water, what's left over, that's your net revenue. It's the actual amount of money that gets deposited into your bank account. In simple terms, gross revenue minus costs equals net revenue.

0:54 Gross versus net sales in Shopify

So let's take a look at gross versus net revenue here in Shopify.

Now this report, the sales over time report, gives us a pretty good look at that breakdown. You'll see here we have our gross sales. Now, this isn't a hundred percent accurate. This is technically all of the gross incomes received, and I'll talk about where they go off on this.

You have discounts, you have returns. We have shipping fees that we've applied. So they have a net sales here that's somewhat accurate. Where they go off is on taxes. Taxes are a liability. It shouldn't be treated as a sale. But this is a good example of gross sales versus net sales. If you were to take this total sales and then take out the tax, it would be technically accurate.

So there's one example in Shopify of gross versus total sales, with that caveat that taxes really shouldn't be treated as a sale at all.

1:47 The same numbers in QuickBooks Online

So now let's look at the numbers inside of QuickBooks Online. You're gonna see here that I have my gross revenue, which is represented as sales, my discounts, my returns, my shipping. You're not gonna see taxes in here because taxes, again, is not a revenue that goes onto the balance sheet, a discussion for another video, but this helps me see what's going on.

Now, I've done a percentage of income comparison to this report. What would be best to do if I wanted to analyze these numbers is compare what percentage of gross revenue, or sales in this case, are discounts, returns, shipping, et cetera. You can't do that in QuickBooks Online, but you could easily do that in a spreadsheet or on your calculator, and helps me understand how often I'm discounting, how much I'm giving away, et cetera. Very useful tool.

So here it is in QuickBooks Online versus what we saw in Shopify.

2:36 Why the difference matters

Understanding the difference between gross and net revenue helps you make informed decisions about pricing, promotions, return strategy, and the other costs of selling on different platforms.

So remember, it's not just about how much you make, it's about how much you get to keep.

If you found this video helpful, like it, share it. And don't forget to subscribe to this channel where you'll get more videos like these.