Breakdown
How it works
Under IFRS 15 discounts, rebates, returns and trade spend are reductions of revenue, not expenses. Strip VAT first (it is never revenue), then each deduction as a percentage of gross ex-VAT sales. Track the gross-to-net percentage monthly — creeping promotional spend is the commonest cause of margin erosion.
Formula
Gross ex-VAT = gross ÷ (1 + VAT)
Net revenue = gross ex-VAT × (1 − discounts − returns − rebates)
Gross profit = net revenue × (1 − COGS %)
Worked example
1m gross, no VAT, 8% discounts, 2% returns, 3% rebates: net 870k (13% GTN); at 55% COGS gross profit 391,500 (45%).
Frequently asked questions
Are settlement discounts revenue reductions?
Yes — early-payment discounts expected to be taken reduce revenue under IFRS 15 (variable consideration).
How do I estimate returns?
Historical return rates by product and channel; recognise a refund liability and a right-of-return asset.
What GTN is typical?
Pharma 30–50%; FMCG 15–30%; B2B distribution 5–15%; direct-to-consumer 5–10%.