When You Have Two Years of Net Sales Which Year Would Be Considered the Base Year?

When you own a small business, it’s important to compare your net sales at the end of each year to net sales in the previous year to gauge your performance. Net sales represent your sales revenue adjusted for any refunds and discounts you give to customers. Between the two years, the older year is considered the base year, which serves as your benchmark. Two ways to compare your data include the dollar change and the percent change.

You can find net sales listed at the top of your income statement. If your income statement shows only “sales,” this line typically refers to net sales. The dollar amount listed is the figure from which you subtract all of your expenses, such as advertising, to calculate your net income, or profit. A growing net sales amount is a positive sign for your small business. The greater your net sales, the higher your profit.

The dollar change between two years of net sales reveals how much more or less revenue you made this year versus last year. This change equals this year’s net sales minus net sales from last year, the base year. A negative result means net sales declined. For example, assume your small business generated $1.5 million in net sales last year and $1.7 million this year. The dollar change is $200,000, or $1.7 million minus the base year’s $1.5 million. This means net sales grew by $200,000.

The percent change in net sales between two years tells you how much the figure grew or declined as a proportion of the base year amount. This provides more insight into the change in net sales than the simple dollar change amount. Percent change equals the dollar change between the two years divided by the base year’s net sales, times 100. Using the previous example, the percentage change equals 13.3 percent, or $200,000 divided by $1.5 million, times 100. This means net sales grew by 13.3 percent of the base year’s net sales.

In addition to figuring the dollar and percent change in net sales, it helps to determine why the figure increased or decreased between the two years. Your net sales might increase if you gain more customers, sell more products to existing customers or raise the selling price of your products. Conversely, net sales might decrease if you lose customers, sell fewer products or reduce your prices. Review your records in the base year and in the recent year to pinpoint potential areas where you can improve.