When you’re launching a new product, it can be hard to generate buzz, especially when you’re trying to reach a new customer base. You may even reach out to buyers who will be willing to try out your product in exchange for a review or a post. But when rebate exchanges like these happen, how does your accounting team handle them?
Why Offer Product Rebates?
If you’ve used any social media in the past 10 years, you’re probably familiar with the terms “influencer” and “influencer marketing”. Influencers are social media users who, for one reason or another, have a large devoted following and use their sphere of influence to market certain products. Influencers exist in every conceivable niche and on almost every social media platform.
Sometimes, a brand may reach out to an influencer or other paid reviewer in order to drum up excitement for a new product. In many cases, especially when the brand is looking for reviews or trying to creep up the results page of an Amazon search, this process occurs as a rebate transaction: the seller sends the reviewer money to purchase the product, and the buyer keeps the product in exchange for its exposure to their audience.
This rebate transaction is actually a chain of transactions – seller to customer (marketing), customer to shop (revenue), and warehouse to customer (inventory) – that all get booked into your P&L in different ways.
The first step in this rebate process is when you, as the seller, give money, usually a gift card, to the person who’s buying your product. That money is now in the hands of the customer; it is a debit to your business’s account.
Since you’re using this money as a way to garner interest and reviews, this first transaction – seller to customer – is handled as a pure marketing expense. Your accountant will put this amount on the Marketing line of your P&L.
When the influencer spends the money you gave them at your storefront, Amazon considers it revenue. Regardless of where it came from initially, that money has now been given to you in exchange for a product.
Your accountant will consider this transaction – customer to shop – a sale and book it in the Sales category of your P&L. This sale then gets split out into an Amazon Fees category and a Net Sales category.
Once the product order goes through, the regular warehouse settlements happen as part of the purchasing process. Therefore, this part of the transaction – warehouse to customer – splits in your accounting as it always does, into Inventory (as a credit) and COGS (as a debit).
It’s easy to get confused on this part of the process, since money has changed hands several times for a single product. But since this same chunk of change only moved one product, it’s important to make sure that this transaction is only expensed once.
The most important thing to remember in this process is that if you sought out (or used a third party to seek out) individuals to participate in this rebate process, you didn’t spend any ad money. Any fees incurred during this search-find-buy process would be considered Marketing Fees, and if you owed money to an agency that helped you, you may need to create a Marketing line item for that as well.
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