Inventory glossary
What is Gross to net requirements?
Gross to net requirements is the calculation that turns total expected demand for a SKU into the actual amount you need to order, after subtracting stock you already have and stock already on order.
Small store owners often order based on forecast demand alone and forget what is already sitting in the warehouse or already on a purchase order. This leads to double ordering or ordering too little because the gross number was never adjusted down to what is actually needed.
Use this calculation every time before you place a purchase order. Start with your forecasted or committed demand for the period, then subtract on hand stock and anything incoming from a supplier, to get the net quantity to buy.
Formula
Example
A candle store forecasts it will sell 300 units of a lavender candle next month, so gross requirement is 300. It has 80 units on hand and 60 units already on order from its supplier. Net requirement is 300 - 80 - 60 = 160 units to order.
Common mistakes
- Forgetting to subtract incoming stock that is already on an open purchase order, which causes duplicate orders.
- Using gross demand as the order quantity instead of calculating the net figure.
- Not updating on hand numbers before the calculation, so the result is based on stale stock counts.
Gross to net requirements and SteadyShelf
SteadyShelf calculates net requirements automatically for each SKU by comparing its forecast against current stock and open purchase orders before suggesting an order quantity.
SteadyShelf is launching on the Shopify App Store. Join early access to get the install link first.
Related terms
Net requirements · Demand forecasting · On order inventory · Reorder quantity · Purchase order
FAQ
Is gross to net requirements the same as reorder point?
No. Reorder point tells you when to order based on lead time demand and safety stock. Gross to net requirements tells you how much to order once you have decided to order, by subtracting what you already have and have coming.
Do I need special software to calculate net requirements?
No. You can do it in a spreadsheet with three columns: forecast demand, on hand stock, and on order stock. Subtract the last two from the first to get the net quantity to buy.
Let SteadyShelf do this math for every SKU
Order-by dates per supplier, seasonal forecasts and draft POs for your Shopify store. $29/month after a 30-day free trial.
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