What is Gross Price?

Gross price is the amount charged for goods or services prior to the application of any discounts. In accounting, the gross price is used to compile the gross sales figure. The deductions that can be applied to a gross price include a volume discount, cash payment discount, and early payment discount.

Example of Gross Price

As an example of gross price, a professional musician wants to purchase a violin for $50,000, before tax. The sales tax on the instrument is 7%, which is $3,500. The gross price of the violin is therefore $53,500, which is the amount that the musician will have to pay the seller.

How to Calculate Gross Price

A gross price should never be lower than the direct costs required to produce the underlying product; otherwise, you will incur a loss on every unit sold. Direct costs are those costs that are only incurred if a product is sold, which are direct materials, direct labor, a sales commission (if any), and credit card fees (if any). Above that point, the gross price is usually based on what the market will bear, which is typically derived from the prices charged by competitors for the same type of product.