Marketing teams constantly brainstorm innovative strategies to encourage customers to make more purchases - from buy one, get one free deals to cart-level discounts, and gifts with purchase. But what's the most optimal accounting approach for tracking and reconciling these enticing programs?
What’s the Main Challenge in Recording and Reconciling Discounts or Complimentary Products in Ecommerce?
As much as possible, consider distinguishing between marketing discounts, promotions, and complimentary orders. Marketing discounts aim to encourage customers to buy more and are tied to a sale. Companies often set up a contra-revenue account for discounts, recognizing them when the item is fulfilled and revenue is acknowledged.
A complimentary order is an order that’s 100% discounted and could be used for a customer service issue (i.e. free replacement order) or in lieu of a free gift card for the company’s VIPs or people they’re hoping will promote the brand. We often see accounting teams separate these orders out — taking them out of revenue and discounts and booking them at the item’s cost as a marketing or customer service expense.
For a lot of teams, the challenge is identifying which orders are related to customer promotions and which orders are related to non-sale activities like influencer marketing or customer service.
How Should Discounts or Complimentary Products Be Recorded to Properly Comply with GAAP?
The general rule of thumb we’ve seen is if the discount is related to a customer transaction then it needs to be part of revenue and contra revenue. If it’s not related to a sales event, such as influencer marketing or customer service issues, then it gets classified as an expense at cost.
Every company’s setup and promotional strategy is different and we recommend working directly with your auditors to ensure you’re correctly accounting for the nuances of your business.
How Does Blue Onion Help to Make This Process Easier?
Blue Onion helps accounting teams identify orders so they can group them into the appropriate category. You can see orders that are 100% discounted along with order tags, discount codes, and notes.
