Why Net Revenue matters
Net Revenue is the truth behind your sales numbers - and the foundation of any serious profitability analysis.
Net Revenue is perhaps the most honest metric in e-commerce. While Gross Revenue captures all orders, Net Revenue shows what actually remains after returns, discounts and taxes. This number is the basis for all further calculations - from margin to profit.
Components of Net Revenue
To understand Net Revenue, you need to know its deductions:
- 1 Returns: In e-commerce, 15-20% of all orders are returned on average. In fashion, this can reach up to 50%.
- 2 Discounts and coupons: Price reductions decrease effective revenue. Overly aggressive discount strategies can significantly reduce Net Revenue.
- 3 Allowances: Payment deductions for early payment, particularly relevant in B2B business.
- 4 Sales Tax: Sales tax doesn't belong to you - it's forwarded to the tax authorities.
Net Revenue vs. Gross Revenue
An example illustrates the difference: With $100,000 Gross Revenue, a 20% return rate, average 10% discount and 8% sales tax:
$100,000 Gross Revenue - $20,000 Returns - $8,000 Discounts - $5,760 Sales Tax = $66,240 Net Revenue. That's only 66.2% of the original Gross Revenue.
How to optimize your Net Revenue
The biggest levers for increasing Net Revenue lie in reducing returns and implementing smart discount strategies. Invest in better product presentations, size guides and customer reviews. For discounts: Use them strategically rather than giving them away across the board.
Connect Net Revenue with other metrics like Contribution Margin and Gross Margin to get a complete picture of your profitability.