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“Net” vs. “Gross”: What Does This Difference Cost You?

blue background with green and white text, net vs. gross

One of the basics of tennis is you never want to hit your ball into the net. Most people won’t confuse this mesh fabric divider that runs across the court with the word gross (even if botching an easy volley straight into the net might feel gross).

But when talking about money, the line that divides net and gross profits isn’t as clear. What is the difference between net and gross when it comes to income and money? Are they synonyms that can be interchanged? Let’s take a closer look.

What does net mean?

Net can be used as a noun, verb, and adjective with multiple meanings (it casts a wide “net,” if you will). As a noun, net can be defined as a mesh-like material that is typically used to divide a tennis court, protect against bugs, or catch something (like butterflies, birds, or fish).

As a verb, net can mean to catch, ensnare, or take with a net. It can also be defined as “to cover, screen, or enclose with a net or netting” to keep things, like bugs out, or to do the exact opposite and set them up to catch things, like fish in a river.

But where net can get confused with gross is when dealing with numbers. As opposed to gross, net as a noun can mean a net income or profit. As an adjective, it can also be defined as “the remaining after deductions, as for charges or expenses” or “sold at a stated price with all parts and charges included and with all deductions having been made.” In other words, this is the final, totally conclusive, amount. For example:

  • After selling his painting at auction for $100, Bob only made a net profit of $50 due to the fees that the company charged to sell it for him.
  • Although Jenny made $2,000 from the computer she sold online, she only netted a fraction of that once you take into account the amount she had to spend on parts and the time she put into building it.

Net (as in the piece of meshed fabric) is a very old word that hasn’t changed very much over time. However, its use to refer to income and profit is more of a recent development—sometime around 1300–1500—and it originates as a variant of neat derived from the Latin nitere (“to shine, look bright, glitter”)

What does gross mean?

Gross as an adjective can be defined as “without deductions; total, as the amount of sales, salary, profit, etc., before taking deductions for expenses or taxes.” Or as a noun, gross refers to the total income from sales, or salary before any deductions. This looks at the big picture sale price, while net looks at the end profit. For example: Johnny’s gross earnings for his lemonade stand were $25, and he only spent $7 on the lemonade and cups, so he was pleased with waling away with $18 at the end of the day.

As a verb, gross means “to have, make, or earn as a total before any deductions, as of taxes, or expenses.” For example, The restaurant still managed to gross a large profit during the coronavirus lockdowns by reinventing their takeout menu for curbside orders.

Gross can also mean “unqualified” or “flagrant; extreme.” For example: Many across the world who followed the salacious case were shocked at the outcome and argued it was a gross injustice for the victims.

Gross’s first recorded use was in 1350–1400, and it originates from the Old French gros (“large”).

How to use gross or net

Although both net and gross can refer to a profit or income, they are not synonyms and have a very important distinction—especially if you’re the one who stands to make that money.

Typically, your gross profit will likely be higher than your net profit, and what you walk away with is your net— not gross—earnings. That’s because gross earnings refer to the overall amount brought in and doesn’t take into account anything that needed to be spent along the way or fees that have to be deducted.

When running a business or doing your taxes, it is important to understand gross vs. net. In business, the gross revenue, also called total revenue, is simply a measure of all of the money you made without accounting for costs like operating expenses. This number is always going to be higher than operating income, which does factor in those additional expenses.

When filing your taxes, you will often need to know both your gross income and your net income in order to correctly figure out what you owe in income taxes. Typically, it is easy to calculate gross income for the year by just looking at the yearly salary. To calculate net income, though, you have to factor in pay deductions from things like taxes or benefits.

For example:

  • When Karen was thinking about flipping a house, she made the mistake of only focusing on the gross profit and not the potential net earnings after subtracting all she had to spend on construction and shiplap.
  • Although her family questioned if it was a solid investment, Sally earned a net profit of nearly double what she originally spent on Bitcoin.
  • When Tyrone sold his car, he was first thrilled about his gross profit of $5,000. But when he took into account that he originally spent $20,000 and the amount of money he put into it over the years, he was less excited with the outcome.

WATCH: We Asked: When Have You Been Overwhelmed By An Industry's Jargon?

 

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