What’s the Difference Between Gross and Net Revenue?

Gross revenue and net revenue are both important financial metrics that businesses use to evaluate their financial performance, but they represent different aspects of a company’s revenue.

Gross revenue refers to the total amount of revenue generated by a company before deducting any expenses, taxes, or other deductions. It is essentially the revenue a company generates from the sale of its products or services. Gross revenue is often used to measure the overall size and scale of a business, and is usually the starting point for calculating other financial metrics.

Net revenue, on the other hand, refers to the revenue a company generates after deducting all the expenses, taxes, and other deductions. This is the revenue that a company actually gets to keep and use to fund its operations or distribute to shareholders. Net revenue is a more accurate measure of a company’s profitability, as it takes into account the costs of doing business and the taxes that must be paid.

To illustrate the difference between gross and net revenue, let’s say a company generates $1 million in revenue from the sale of its products. If the company has $500,000 in expenses, including the cost of goods sold, salaries, rent, and other costs, its net revenue would be $500,000. The company could then use this net revenue to pay taxes, invest in new equipment or technology, or distribute dividends to shareholders.

In summary, gross revenue is the total revenue generated by a business before any deductions, while net revenue is the revenue that remains after all deductions are made.