Net Sales or Revenue

Net Sales or Revenue

Many commercial contracts use the concept of “net revenue” or “net sales” as a key metric in prescribing the triggering of or defining the scope of certain rights and obligations between the parties. Accordingly, such an important term should be carefully drafted to avoid disputes and misunderstandings between the parties.

The following exemplars identify certain costs that should be deducted or netted against gross revenues/sales for purposes of defining “net sales” or “net revenue”:

Exemplar C52-1

The term “Net Sales” shall means the gross invoiced price paid by a third party for the Licensed Products, less the following deductions to the extent actually paid or allowed: (a) repayments, allowances or credits actually given to such third parties for returned or defective Licensed Products up to a maximum of 9% of the value of the returned/defective product; (b) freight, transportation, delivery, taxes and insurance costs incurred in transporting such Licensed Products to such third parties if separately itemized on the invoice paid by the third party; (c) sales, value-added, use and other direct taxes (other than income) to the extent separately stated on purchase orders, invoices or other documents of sale; and (d) customs and tariff duties and surcharges and other governmental charges incurred in connection with the exportation or importation of the Licensed Products. The term “Net Sales” in the case of non-cash sales (i.e., a gift, use or other disposition of a Licensed Product for other than a selling price stated in cash), shall mean all equivalent or other consideration received by Licensee for the Licensed Products, or if no quantifiable consideration is received it shall mean the average gross selling price charged by Licensee in consideration of the sale of Licensed Products during the three (3) month period immediately preceding such non-cash sale without reduction of any kind.

Exemplar C52-2

“Net Sales Revenue” of a product means the gross amount paid by a purchaser of such product to Seller or any other party authorized by Seller to sell such product, less (a) trade, quantity, or cash discounts, rebates, or billing errors; (b) sales, value, use, or other similar transactional taxes, (c) freight, transportation, and handling charges and allowances, (d) commissions paid to sales representatives or finder’s fees paid by Seller, (e) returns that are accepted by Seller from purchasers in accordance with Seller’s normal practice and for which Seller gives credit to such purchasers or retroactive price reductions in lieu of returns, whether during the term of this License Agreement or not, and (f) the cost to Seller of marketing, manufacturing, and packaging of the product.

Exemplar C52-3

As used herein, “Net Sales” means, with respect to a given Contract Year, the aggregate amount received by Seller and paid by Customer, in full and within payment terms, for purchases of consumable packaging products (“Products”) hereunder; provided, however, that Net Sales excludes: (a) freight, non-product charges, payment discounts, surcharges, insurance, rebates and any sales or similar taxes; (b) returned Products; and (c) amounts for which Supplier may have to repay for any reason, including as a result of insolvency, bankruptcy or an assignment of creditors.