Trade promotion spending

For many food, drink and household goods companies, trade promotions are the largest cost after raw materials, often more than all their advertising. Getting the accounting right matters for revenue, margins and the balance sheet, because retailers deduct claims long after the goods are delivered and the estimates are large. This guide explains which promotions reduce revenue, works through a promotional quarter from gross to net, and covers accruals for unclaimed deductions, coupons, presentation and US GAAP.

By Hamza Fida, Chartered Accountant. Reviewed by Mirza Fahad Baig, Chartered Accountant. 3 minute read.

Short answer

Trade promotion spending is the money a consumer goods company pays retailers to promote its products: off-invoice discounts, temporary price reductions funded per unit sold through the till, payments for features in retailers' leaflets and displays in store, and co-operative advertising funds. Under IFRS 15, these are consideration payable to a customer, so they reduce revenue, not marketing expense, unless the company receives a distinct service at fair value, which is rare. Where promotions are customary, they are variable consideration estimated when the goods are sold to the retailer, even though retailers often claim them months later, so the company accrues for deductions not yet claimed. In this guide's example, US$ 2,000 thousand of gross sales become 1,780 thousand of revenue after promotions.

At a glance

Accounting
Reduction of revenue
Exception
Distinct service at fair value
Customary promotions
Estimated at sale
Unclaimed deductions
Accrued as refund liabilities
Scan-based promotions
Based on expected sell-through
Consumer advertising
Expense, not revenue
Trade promotion spendingAccounting: Reduction of revenue; Exception: Distinct service at fair value; Customary promotions: Estimated at sale; Unclaimed deductions: Accrued as refund liabilities; Scan-based promotions: Based on expected sell-through; Consumer advertising: Expense, not revenue.KEY FACTS AT A GLANCETrade promotion spendingAccountingReduction of revenueExceptionDistinct service at fairvalueCustomary promotionsEstimated at saleUnclaimed deductionsAccrued as refundliabilitiesScan-based promotionsBased on expectedsell-throughConsumer advertisingExpense, not revenueTax BakersTrade promotion spendingAccounting: Reduction of revenue; Exception: Distinct service at fair value; Customary promotions: Estimated at sale; Unclaimed deductions: Accrued as refund liabilities; Scan-based promotions: Based on expected sell-through; Consumer advertising: Expense, not revenue.KEY FACTS AT A GLANCETrade promotion spendingAccountingReduction of revenueExceptionDistinct service at fair valueCustomary promotionsEstimated at saleUnclaimed deductionsAccrued as refund liabilitiesScan-based promotionsBased on expected sell-throughConsumer advertisingExpense, not revenueTax Bakers
Key facts at a glance, as set out in this guide.

Which trade promotions reduce revenue?

IFRS 15 treats consideration payable to a customer, including to parties that buy from the customer, as a reduction of the transaction price, unless it is payment for a distinct good or service the company receives. Off-invoice discounts, temporary price reductions, scan-based payments per unit the retailer sells during a promotion, feature and display fees, co-operative advertising funds and payments for promotional events at the retailer all reduce revenue. A payment is an expense only if the company receives something distinct that it could buy from another supplier, such as market research data, and only up to its fair value; any excess still reduces revenue. See variable consideration.

Trade promotion spending: from gross to net

A manufacturer sells 100,000 cases to a retailer at US$ 20 a case in a quarter, 2,000 thousand gross. The deal includes a 5% off-invoice discount, a temporary price reduction funded at 1.50 per case the retailer sells during a four-week promotion, which the manufacturer expects to cover 60,000 cases, and a 30 thousand fee for a feature in the retailer's leaflet and an end-of-aisle display.

From gross sales to revenue (US$ thousand)From gross sales to revenue (US$ thousand)2,000Grosssales-100Off-invoicediscount-90Scan-basedreduction-30Feature anddisplay1,780Revenue
Trade promotions reduce revenue, not marketing expense.
US$ thousandAmountBasis
Gross sales2,000100,000 cases × 20
Off-invoice discount(100)Deducted on the invoice
Scan-based price reduction(90)Expected 60,000 cases × 1.50
Feature and display fee(30)Not a distinct service
Revenue1,780

The scan-based payment depends on how many cases the retailer sells during the promotion, so it is estimated from sell-through data and past promotions and constrained to the amount that is highly unlikely to reverse. At the quarter end, if the retailer has claimed only 40 thousand of the 120 thousand of promotional funding, the manufacturer holds a refund liability of 80 thousand for the rest.

How are unclaimed deductions estimated?

Retailers often deduct promotional claims from payments weeks or months after the promotion, and sometimes deduct amounts the manufacturer disputes. The trade spend accrual covers promotions that have run but not been claimed, based on promotion calendars, sell-through data and historical claim patterns, and is one of the main estimates in FMCG accounts. Amounts are released only when the manufacturer is confident they will not be claimed, considering the retailer's right to claim late. Deductions the manufacturer disputes are tracked separately and recovered or written off when resolved.

When is a new promotion recognised?

If the company has a customary practice of funding promotions, the expected cost is part of variable consideration from the time of sale. If it agrees a new promotion for goods already sold to the retailer, with no prior expectation, revenue is reduced when it promises the payment. A promotion agreed for goods still to be delivered reduces the revenue on those goods when they are sold.

How are consumer coupons and cash-back treated?

Manufacturer coupons redeemed by shoppers at the retailer, which the manufacturer then reimburses, are consideration payable to the retailer's customers, so they reduce the manufacturer's revenue, estimated using expected redemption rates. Cash-back offers paid directly to consumers are treated the same way. See retail promotions and coupons.

How is trade spend presented, and how does US GAAP differ?

Because trade spend reduces revenue while consumer advertising is an expense, two companies with the same marketing budget but a different mix report different revenue and gross margins. Companies often disclose gross sales, trade spend and net revenue to help comparison, and explain significant changes in the accrual. ASC 606 gives the same answers, and US consumer goods companies also present trade promotions as reductions of revenue. See FMCG accounting, slotting and listing fees and volume rebates to retailers.

Need help applying the standards?

Our Chartered Accountants help finance teams and students apply IFRS and US GAAP to real transactions.

Book a call Chat on WhatsApp

Questions people ask

Are trade promotions a marketing expense under IFRS?

No. They are consideration payable to a customer and reduce revenue, unless they pay for a distinct service received at fair value.

When are trade promotion costs recognised?

When the related goods are sold if the promotions are customary, as variable consideration; otherwise when the company promises the payment.

How are unclaimed promotional deductions accounted for?

As a refund liability, estimated from promotion calendars, sell-through data and claim history.

Do manufacturer coupons reduce revenue?

Yes. Coupons redeemed by shoppers and reimbursed by the manufacturer reduce its revenue, based on expected redemption.

Sources

Every fee, date and rule on this page was taken from these official and primary sources.

  1. IFRS Foundation: IFRS 15 Revenue from Contracts with Customers
  2. FASB Accounting Standards Codification: Topic 606, Revenue from Contracts with Customers
  3. Financial Accounting Standards Board: Revenue recognition

Rules and fees change. If you are reading this long after October 10, 2026, confirm the figures with the source before you rely on them.

FMCGFMCG accounting: the key IFRS issuesFMCGVolume rebates to retailersIFRS 15Variable consideration and the constraint under IFRS 15

More in FMCG

Next in this topicSlotting and listing feesTopicAll 12 guides in FMCG

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