Net sales is gross sales minus all sales returns, allowances, and discounts. It appears in a company’s income statement and is a more accurate reflection of a company’s sales performance.
For example, company A has total sales revenue of $100,000. The total amount of customer returns is $10,000. The company also sold some damaged products at discounted prices. The total sales allowance came to $5,000. Therefore, the net sales of company A is $100,000 – $10,000 – $5,000 = $85,000.
A company with high gross sales but low net sales may be discounting its prices too much. If the low net sales is the result of a high amount of returns, the company may need to investigate the reason why customers are returning the products.