Manufacturers rely on third party companies to commercialize their products. They work with different companies to achieve outreach of products within the market and efficiency in supply chain. Manufacturers often encourage these companies for delivering goods to the retailers and eventually the end customers through incentives. Incentives, distribution fees, rebates offered across the supply chain eventually impact the Net realization by the companies, making Gross to Net management an extremely intricate process, which if not managed appropriately could lead to revenue loss and would impact organization position in a vastly competitive market.
Gross sales is a grand total of all sales reported in a period and Net sales is gross sales minus discounts which come in varied forms:
- On invoice discount – Discount offered on the list price
- Off invoice discount – Rebates
- Distribution fees
- Price concessions
- Prompt pay discounts
- Purchasing program discounts
- Medicaid fees
- Rebates granted usually basis achieve certain volume targets either quarterly, semi-annually or annually
The above two components are vital information for an enterprise to predict net realization impacting directly to the profitability.