Whenever you hear the word "net" in terms of cost, it means that there was a corresponding "gross" or total figure. The net cost of an item is the gross cost minus its financial benefit. Accountants and financial analysts use this calculation to get an accurate idea of the real cost of a purchase for the benefit of a business, individual or purpose.
Determine the gross cost of the item. This is the ticket price. For instance, if you are a student who is planning to attend college, the tuition, books, room and board, and additional college fees will be the gross (total) cost.
Determine the benefit of the cost in terms of a savings, income, or acquisition. For instance, scholarship money for the college student in our example from the first step would be the benefit. It could also be the value of an asset or amount of income that you earn due to the purchase of the item. For instance, if you purchase equipment for $1,000 and it makes you $200 more dollars than usual in the first month of ownership, that could be considered the financial benefit.
Subtract the gross cost from the financial benefit of the item to find out the net cost. This is the "true" cost of the item.
- In some cases, you may have a financial loss due to the purchase of an item. In that case, you would add the additional cost to the gross cost to get the net or "true" cost of the purchase.
- Determining the net cost of a purchase will help you to determine if the investment was a smart decision that should be repeated in the future.
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