REVENUE RECOGNITION
Net sales include sales of products and shipping and handling charges, net of estimates for product returns and any related sales incentives or rebates based upon historical information and current trends. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring products. All revenue is recognized when we satisfy our performance obligations under the contract. We recognize revenue by transferring the promised products to the customer, with revenue recognized at the point in time in which the customer obtains control of the products, per the agreed shipping terms in the respective market. The majority of our contracts have a single performance obligation and are short term in nature. Contracts with multiple performance obligations are insignificant. Amounts received for unshipped merchandise are recorded as deferred revenue. Membership fees are deferred and amortized as revenue over the life of the membership, primarily one year.
A reserve for product returns is recorded based upon historical experience. We allow independent consultants to return the unused portion of products within ninety days of purchase if they are not satisfied with the product. In some of our markets, the requirements to return product are more restrictive. Sales returns for the years ended December 31, 2024 and 2023, were $2.0 million and $2.1 million, respectively.
Amounts billed to customers for shipping and handling are reported as a component of net sales. Shipping and handling revenues of approximately $2.1 million and $1.4 million were reported as net sales for the years ended December 31, 2024 and 2023, respectively.
Volume incentives, and other sales incentives or rebates, are a significant part of our direct sales marketing program and represent commission payments made to independent consultants. These payments are designed to provide incentives for
reaching higher sales levels. The amount of volume incentive recognized is determined based upon the amount of qualifying purchases in a given month and recorded as volume incentive expense. Payments to independent consultants for sales incentives or rebates related to their own purchases are recorded as a reduction of revenue. Payments for sales incentives and rebates are calculated monthly based on qualifying sales.
Taxes that have been assessed by governmental authorities and that are directly imposed on revenue-producing transactions between us and our customers, including sales, use, value-added and some excise taxes, are presented on a net basis (excluded from net sales).
Disaggregation of Revenue
Our products are grouped into six principal categories: general health, immune, cardiovascular, digestive, personal care and weight management. We have four business segments that are based primarily upon the geographic region where each segment operates. Each of the geographic segments operate under the Nature’s Sunshine Products and Synergy WorldWide brands. See Note 12, “Business Segment and International Operation Information," for further information on our reportable segments and our presentation of disaggregated revenue by reportable segment and product category.
Practical Expedients and Exemptions
We have made the accounting policy election to treat shipping and handling as a fulfillment activity rather than a promised service under Topic 606.