Key differences between gross revenue vs net revenue
Differentiating gross revenue from net revenue is crucial for several reasons. One, it can help you escape significant tax repercussions.
Corporate taxes are based on leftover income—money earned after deducting business expenses, which is also known as net revenue.
Suppose your company sold products worth $45,000 in February. If you spent $18,500 on business expenses, your gross revenue would be $45,000 and your taxable income $26,500. With the current tax rate at 21% of taxable income, mistaking the two figures can cause you to use the tax percentage from a higher initial figure, resulting in $3,885 more in taxes.
This difference is also crucial when needing to pay commissions to sales reps or affiliate marketers.
So what are these differences?
Gross and net revenue differ in several ways, including:
Net revenue is the difference between gross revenue and business expenses.
Gross revenue is the sum of all cash inflows.
On its end, net revenue is the difference between gross revenue and business expenses. Expenses such as:
- Cost of goods sold
- Marketing costs
- Rent and utilities
- Office supplies, if necessary
- Employee compensation
- Legal and administrative costs
- Cost of software and other technology subscriptions
- Costs of discounts, returns, etc.
Note: Dividend payments are not deductibles when calculating net revenue.
Unlike gross revenue, net revenue is reported on the last line to represent any remaining business earnings.
Despite the differences, gross and net revenue are essential in establishing a company's financial health. But recognizing and reporting them can be time-intensive, hence the need to leverage revenue automation tools.