You, a freelance creative, buy a plane ticket to go and see a client. You rebill the ticket at cost and your client pays you back. So, if you need to state a number when you’re applying for a credit line or some such, should you include the value of that ticket in your revenues?
Of course not. That pass through expense has nothing to do with your business; it’s just money that appears on your balance sheet on its way from one place to another. Or to quote the wonderful though wonky Grumpy Old Accountants website, “SEC Staff Accounting Bulletin 101 on Revenue Recognition, Question 10 specifically, is congruent with EITF 99-19. The SEC stated that firms should report revenues on a net basis if they did not take title to the products, did not have the risk and rewards of ownership, and acted as an agent or broker.”
Groupon did not get the memo. They have been booking the full value of their coupon sales as revenue, not accounting for the fact that a large percentage of what they are collecting is going to go into the pockets of retailers and they are just a conduit. As a result, yesterday Groupon had to restate its revenues and reduce them by 50%, while incidentally announcing their recently hired CEO is on her way back to Google.
So much for that IPO. And perhaps much of that money that Groupon collected on the premise that its copywriters are worth $6 billion will have to be returned, since it was based on the misstated revenues. As I mentioned in that earlier post, retailers like the results that they get with Groupon but resent the charges which are higher than with other social couponing sites. It would be a lot of fun to be a LivingSocial or BlackBoardEats rep calling on your prospects next week, would it not?
I hope Groupon does not go down in flames because I think the quality of its creative expression (along with excellent, rock-solid marketing) has been the decider. You may have noticed that the Groupon “Voice” now extends no further than the opening sentence or two of most offers; after that it is straightforward, though good, marketing copy. But this is offset by the wonderful temporary insanity of the “Groupon Says” feature at the bottom of the offer page.
Google copywriters: if you guys get laid off, give otisregrets a call and let’s talk about some mutual opportunities.