Net Revenue
Definition, formula, a worked example, and the mistakes that make it wrong. For DTC brands.
What is net revenue?
Formula
Gross sales - discounts - returns + shipping charged - shipping refunded (tax excluded)
What each part means
- Gross sales
- Item price times quantity, before discounts and returns. Decide whether gift card sales count.
- Discounts
- Price reductions applied to the order, such as codes and automatic discounts.
- Returns
- Merchandise refunds and other sales reversals. Shopify reports them on the date the refund was processed, not the date of the original order.
- Net sales
- Gross sales minus discounts and returns. Excludes tax and shipping. Shopify defines it the same way.
- Shipping charged and refunded
- Shipping the customer paid for, minus any shipping refunded. Keep shipping refunds out of item sales so they are not subtracted twice.
Worked example
In a month, gross sales are $10,000. Discounts are $1,000 and returns are $500, so net sales are $8,500. Customers paid $600 for shipping and $100 of that was refunded. Net revenue is $8,500 + $600 - $100 = $9,000. Tax is left out.
Where the numbers come from
- Shopify order lines and refund lines (sales reversals)
- Shopify shipping lines for shipping charged and refunded
- Marketplace settlement refund rows for Amazon and other channels
- The general ledger for the closed month, as the tie-out
Mistakes that make it wrong
- Calling Shopify total sales net revenue
- Shopify total sales adds shipping, taxes, duties, and fees to net sales, so it runs higher than net revenue. Name each number differently.
- Mixing refund date and order date
- A refund processed in February can lower February's sales activity while belonging to a January order. Label which date a report uses: booked by refund date, or by order cohort.
- Adding up marketing revenue
- Platform revenue is credit for orders a channel claims. Two platforms can claim the same order, so the sum can overshoot real sales.
- Cutting days in different time zones
- An order at 11:30 PM on October 31 in New York is November 1 in UTC. Pick one reporting time zone, usually the store's, and convert everything to it.
What good looks like
Net revenue is not a ratio, so there is no benchmark. The check that matters is the tie-out: net revenue for a closed month should match the general ledger under finance's rule, and booked net sales should match Shopify for the same dates and time zone.
Common questions
What is the difference between net sales and net revenue?
Net sales is gross sales minus discounts and returns. Net revenue is not a single standard term. Many brands add shipping charged, and finance applies its own timing rules. Write down your rule and let finance own it.
Why do Shopify, finance, and marketing report different revenue?
They count different things on different dates. Shopify reports sales activity, finance reports revenue under its accounting policy, and marketing reports revenue credited to its channels.
Should a refund lower the month of the sale or the month it was processed?
Both views are valid. Shopify's sales reports lower the month it was processed. An order cohort view ties it back to the order and restates that month. Name the two measures differently.
Is tax part of net revenue?
No. In our sample definition, net revenue is before tax. Tax is collected for the government, not earned.
Who owns the net revenue definition?
Finance. The closed month in the ledger is the tie-out, and finance decides whether revenue follows the order, ship, or delivery date.
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