June 13, 2022
If you’re not used to accounting terminology, things like “Gross Sales” might sound like a bad thing! However, in this case, you don’t need to worry. Gross in Accounting doesn’t mean the same thing it does in “real life!”
Gross Sales is simply a term that describes your total revenue for a predetermined reporting period. Here’s a little more information about what is Gross Sales, how it’s calculated, and why you should know your Gross Sales figures.
Suppose you’re wondering how to calculate Gross Sales (and whether it’s complicated!) Don’t. Gross Sales is simply another word for Revenue or Total Sales.
These are some of the simplest figures to calculate in Accounting, and you’re probably already tracking them if you’re invoicing and processing orders using accounting software such as QuickBooks.
When you’re trying to figure out what do Gross Sales mean and what your Total Sales are, the simplest answer is that it’s every sale you have made during a particular period, without any discounts or deductions.
Sometimes, after a sale has been made, there’s a problem. A client will ask for a reduction in price because of a delay or defect, or they might ask for a refund for many different reasons. Those sales price changes are not reflected in your Gross Sales figures. It’s only a calculation of the total amount of sales you have made during any period.
Gross Sales are one of the easiest things to calculate. All you need to do is track your sales to calculate this figure.
So, if you have three sales in a month, one at $5,000, one at $20,000 and one at $10,000, your Gross Sales for the month would be $35,000.
If you are using accounting software, then your monthly Gross Sales would simply be the total of all the orders you have entered into your system.
So the Gross Sales formula is straightforward:
Gross Sales = Total orders
You might be wondering why you need to know your Gross Sales. There are several reasons.
Gross Sales volumes are an excellent way to tell if your sales and marketing efforts are achieving their goals. It’s also an excellent way to measure your business’s growth. If your monthly Gross Sales are more than you made in the same month last year or the previous month, then it’s a sign that your business is on the right track and growing.
However, since Gross Sales figures aren’t as accurate as Net Sales and don’t tell you as much as net profit, for example, it’s not usually a figure with much value externally. So, for instance, if you want to get a loan or sell your business, you probably couldn’t do it on the strength of Gross Sales alone!
One of the most confusing things about the accounting world is that there is often more than one name for the same thing.
In this case, Gross Sales are also sometimes known as Total Sales, Revenue and sometimes Turnover. The terminology used will depend somewhat on where you are. Different accounting terminology is sometimes slightly different in various parts of the world.
These terms simply mean the total volume of sales made during a particular period.
One of the more complicated things about Accounting is that things don’t happen simultaneously.
You might make a sale that is recorded as part of your Gross Sales, order materials for the job the next month, and complete and invoice it the next. So the same order will have different accounting figures spread over three months – or more if you also record when you receive payment for the job.
You can only calculate profit from your sales once you have completed the work and have all of the costs and expenses related to the project in hand.
This is why many companies calculate profits on a quarterly or even annual basis. It makes it easier to get the whole picture, particularly in cyclical businesses, which might have sales volumes that fluctuate at different times of the year.
Using accounting software in your business is the best way to track Gross Sales in real-time. If you plan to use accounting software, you can also also use LiveFlow that helps to export Profit & Loss reports directly into Google Sheets and use the platform to quickly and easily calculate Gross Sales, Profit and more. You can even monitor the difference between Gross Sales in one year with another year or even month-to-month. This will allow you to see whether you’ve experienced growth in real-time.
Because LiveFlow can be set up to automatically update your spreadsheets whenever there is a new transaction, it’s also easy to share this information with managers and other stakeholders who need to know what your Gross Sales figures are. They’ll always see the most up-to-date information whenever they open their reports, so they can make the right decisions and plan accordingly.
Gross Sales figures are useful in business because it helps to give you a snapshot of how well your sales and marketing efforts are doing. However, since there’s a lot of information that is not included in Gross Sales, it is not helpful for every application.
If you are asked to provide any financial information by a bank or potential business partner and are unsure what they require, you should always ask. While they might look at Gross Sales in some cases, they are much more likely to look for other information types.