Online marketplaces: principal or agent

Online marketplace revenue: own stock vs third-party sales

A marketplace sale example

A customer buys a product for 100 on the platform from a third-party seller. The platform charges the seller a 15% commission and a 5 fee for storing, packing and delivering the item from the platform's warehouse.

The cash of 100 collected from the customer passes through the platform, but 80 of it is owed to the seller: a payable, not revenue.

Which indicators show control?

• Primary responsibility for fulfilling the promise to the customer: for marketplace sales, the seller is usually responsible for the product itself.
• Inventory risk: the platform does not own third-party goods before the sale, even when they sit in its warehouse.
• Discretion over price: third-party sellers set their own prices.

The indicators support the control assessment rather than replace it. If a platform buys goods from sellers momentarily before reselling them, or takes responsibility for product quality and returns as its own, the conclusion may differ.

Why is fulfilment a separate service?

Storing, packing and delivering goods for sellers is a service the platform provides and controls, so it is principal for that service and recognises the fee gross, with its warehouse and delivery costs as expenses. Advertising sold to sellers on the platform is similarly the platform's own service.

How are platform-funded discounts treated?

When the platform pays for a discount on a third-party seller's product, it is consideration payable to a customer, the end shopper, who is also the platform's customer for the marketplace service. It reduces the platform's revenue, and in some promotions can exceed the commission on the sale.

How are customer payments and seller payables handled?

The platform collects the full price from the customer, keeps its commission and fees, and pays the rest to the seller after a settlement period. The amount owed to sellers is a financial liability, and cash held for sellers may be subject to safeguarding rules in some jurisdictions. Payment processing fees the platform pays to card networks are its own costs.

Who bears returns on marketplace sales?

Usually the seller: the refund is deducted from what the platform owes the seller, and the platform's commission may be refunded too, which reduces its revenue. Platform guarantees that refund customers when sellers fail are typically a separate obligation, assessed as a guarantee, rather than evidence that the platform controls the goods.

How do analysts use gross merchandise value?

Gross merchandise value, the total value of goods sold through the platform, shows the scale of activity that agency accounting removes from revenue. The ratio of revenue to gross merchandise value, the take rate, is a key measure of how much the platform earns from each sale.

What about retailers that sell both ways?

Many retailers sell the same product from their own stock and from third-party sellers on the same page. Each sale is assessed separately, so revenue for identical products can be gross or net depending on who sold that unit.

What do marketplaces disclose?

Revenue split between own sales, marketplace commissions and services, the judgements in the principal or agent assessment, and often gross merchandise value as a non-IFRS measure, which would be a management-defined performance measure under IFRS 18 only if it were a subtotal of income and expenses, which it is not. See principal vs agent and retail accounting.

This guide is general information. It is not tax or legal advice for your situation.