Payments to Customers for Cooperative Digital Marketing

As digital commerce, online marketplaces, and retail media networks continue to expand, cooperative advertising arrangements between manufacturers and retailers have become increasingly prevalent. In many of these arrangements, a manufacturer reimburses or compensates a retailer for digital marketing activities that promote the manufacturer’s products.

Because these arrangements involve payments made to a customer, entities must evaluate the guidance in Accounting Standards Codification (ASC) 606 related to consideration payable to a customer and distinct goods or services. The accounting outcome directly affects reported revenue.

This article reviews the relevant ASC 606 guidance and outlines practical considerations for determining whether digital marketing services provided by a customer are distinct in a cooperative advertising arrangement.

How To

Under ASC 606-10-32-25 through 32-27, payments made to a customer — including cash, invoice credits, coupons, vouchers, or share-based consideration granted in conjunction with selling goods or services — are generally accounted for as a reduction of the transaction price (and therefore revenue).

In cooperative digital marketing arrangements, payments commonly take the form of:

Reimbursements for sponsored product placements
Fees for search or algorithmic prioritization within a retailer’s platform
Website or mobile app banner advertisements
Email marketing campaigns
Retail media network placements
Promotional or featured product listings

However, if the payment is made in exchange for a distinct good or service that the customer transfers to the entity, the entity accounts for that payment in the same manner as other purchases from suppliers (for example, as marketing expenses).

The critical accounting question is whether the digital marketing activity represents a distinct service provided by the customer.

If the service is distinct, the payment is recorded as an expense (typically marketing expenses), which is the same as other purchases from suppliers. If the service is not distinct, the payment reduces the transaction price and therefore reduces revenue.

Determining Whether Digital Marketing is Distinct

For a digital marketing service to be distinct when provided by the customer to the seller, the service must meet the two criteria found in ASC 606-10-25-19:

Capable of being distinct. The marketing service provides a benefit to the seller either on its own or together with other resources that the seller has readily available.
Distinct within the context of the contract. The customer’s promise to provide digital marketing services is separately identifiable from other promises the customer may make to the seller in the contract.

Distinct: Promotional and Marketing Efforts (2019 SEC Comment Letter)In an SEC comment letter with Tupperware Brands Corporation, the Staff questioned whether promotional awards and incentives provided to independent sales force members—who purchase products from Tupperware and therefore are considered customers under ASC 606—to enhance brand awareness, recruit and train new sellers, and stimulate indirect sales are distinct from the sale of goods under ASC 606.

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Tupperware responded that leadership-level sales force members perform “business building services,” including recruiting, training, motivating new sales force members, and providing marketing, brand awareness, and sales communications. These services directly benefit the Company and are similar to services that could be performed by employees or third-party consultants: “If the Company were not receiving the benefit of the business building services through activities performed by the independent sales force to add, train and motivate new sales force members, it would likely choose to hire and compensate employees, or other resources, to perform these tasks.”

It noted, under ASC 606-10-25-19, a service is distinct if the entity benefits from it on its own or together with other resources, and if compensation is separately identifiable from revenue-generating contracts. Tupperware concluded that these promotional awards and incentives meet both criteria because:

The Company benefits independently from these business-building services.
Compensation for these services is separately identifiable from the sale of goods to the independent sales force.
Leadership-level sales force members’ activities are not controlled by Tupperware, and downline sales are separate from the services performed.

As a result, Tupperware records these costs in delivery, sales, and administrative expenses (DS&A) rather than including them in revenue: “promotional awards and compensation are for business building services that are separate and distinct from its revenue contracts.”

Not Distinct: Advertising Services (2022 SEC Comment Letter)

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In an SEC comment letter, the SEC Staff questioned whether Near’s platform access and advertising services provided to its customers—users of its data intelligence platform—were separate performance obligations under ASC 606 because the company charged both a platform fee and advertising-based fees.

Near responded that it provides a “fully integrated and comprehensive data intelligence platform” and charges “a singular fee for this end-to-end service.” While Near acknowledged that the services are capable of being distinct under ASC 606-10-25-19(a)—because customers can benefit from each service using readily available resources—it concluded that the services are not distinct within the context of the contract under ASC 606-10-25-19(b).

The company explained that the nature of its promise is to deliver “a combined output, i.e., an integrated data intelligence solution,” and that each component is merely “an input” into that overall solution. Near also emphasized that it markets and sells the offering as a single integrated service and does not provide advertising execution “on a standalone basis.”

Accordingly, Near concluded that the platform access and advertising services are not distinct within the context of the contract and should be accounted for as a single performance obligation under ASC 606-10-25-19 and 25-21.

No implementation guidance in ASC 606 applies directly to digital marketing; however, KPMG offers the following insight related to traditional advertising services:

[If individual advertising spots] are highly interrelated inputs used to fulfill the promise to provide viewership and advertisement spot guarantee (the combined output), they are not distinct in the context of the contract. Because each of the promises is not distinct, the promises are combined into a single performance obligation – the advertising campaign, insertion order or flight plan. However, to the extent that a cumulative guaranteed viewership is not included in the arrangement and each spot is not dependent on any other spot – i.e. the spots are no longer highly affected or highly interrelated with other promises in the contract – an entity may conclude that each spot is distinct in the context of the contract.

This insight illustrates how the distinct good or service guidance applies to advertising by pointing out the importance of the advertisement’s reach. The questions in the following section incorporate this observation and apply the distinct good or service guidance to digital marketing.

Distinct or Not Distinct?

The questions below serve as a guide in determining whether digital marketing services are distinct. These considerations are not determinative; entities must apply judgment based on all relevant facts and circumstances when evaluating the arrangement under the distinct goods or services guidance.

Assume that a manufacturer is reimbursing an e-retailer customer for digital marketing related to one of the manufacturer’s products.

Is the advertising internal or external to the e-retailer’s website?

Internal advertising—such as a banner advertisement that is only displayed on the e-retailer’s site—is likely not distinct because a potential buyer would have to navigate to the e-retailer’s site to see that advertisement. Therefore, any benefit to the manufacturer is dependent on the e-retailer’s efforts in maintaining its site.
In contrast, external advertising of the manufacturer’s product, such as a social media advertisement, is more likely to be a distinct marketing service because the manufacturer gains significant benefit independent of the e-retailer (i.e., the advertisement is widely viewed by potential customers without them accessing the e-retailer’s site).

Would the e-retailer be willing to purchase the manufacturer’s product without the cooperative advertising agreement?

If so, the service is likely distinct.
If not, the service is likely not distinct because the product and advertising are being sold as a bundle.
- For example, if a manufacturer does not wish to share in the e-retailer’s online marketing costs, but the e-retailer refuses to purchase the manufacturer’s product unless the manufacturer agrees to the cost-sharing terms, the e-retailer’s promise to purchase the manufacturer’s product is not separately identifiable from the e-retailer’s promise to provide marketing services. This may be because online marketing is vital to the e-retailer’s success, and the cost-sharing agreement is the only way the e-retailer can financially sustain its operations.

Is payment to the e-retailer designated for a specific advertising service, or is it a general reimbursement?

A distinct service must be identifiable; therefore, if the manufacturer regularly reimburses a fixed amount for general advertising, the service is likely not distinct.
If the manufacturer reimburses for each digital marketing service, the services are more likely to be distinct.

Can the manufacturer purchase comparable advertising through a third party?

If not, the service is likely not distinct.
If so, the service is more likely to be distinct.
- For example, assume the e-retailer purchases Google SEO services to promote the manufacturer’s product. The manufacturer could also purchase Google SEO services to promote its own product, which suggests that this service is more likely to be distinct.

For additional information on the topic of distinct goods and services, see the RevenueHub articles Distinct Goods or Services in ASC 606 and Series of Distinct Goods or Services in ASC 606.

Fair Value & Share-Based Considerations

If a payment is for a distinct service but exceeds the fair value of that service, the excess must be accounted for as a reduction of revenue. If the fair value cannot be reasonably estimated, the entire payment reduces revenue (ASC 606-10-32-26).

According to ASC 606-10-32-27, if the payment reduces the transaction price, the reduction of revenue is recognized at the later of:

(1) when revenue for the related goods is recognized, or

(2) when the entity pays or promises to pay the consideration.

For more information on this subject, refer to the RevenueHub article Consideration Payable to a Customer.

Although uncommon in typical cooperative marketing arrangements, ASC 606 also applies when share-based consideration is granted to a customer in conjunction with product sales or marketing support. Such awards are measured and classified under Topic 718. The distinct service analysis is used to determine whether the fair value of the award represents payment for a distinct service or a reduction of revenue. Under ASU 202504, share-based consideration payable to a customer is measured at fair value on the grant date in accordance with ASC Topic 718, and the “distinct service” test continues to determine whether the award should be recognized as an expense or a reduction of revenue.

Conclusion

The primary goal of the FASB in relation to the topics discussed in this article is to prevent companies from "grossing up" revenue. When accounting for modern cooperative digital marketing, "marketing" labels on an invoice are insufficient. Entities should consider all aspects of the digital marketing service to ensure that it is both capable of being distinct and separately identifiable. Furthermore, if the service is distinct, entities should evaluate whether the amount being paid accurately reflects the fair value of the service.

Editor’s Note

This article was originally published in January 2020. It has been updated to reflect current guidance under ASC 606, including clarifications related to consideration payable to a customer and related implementation guidance. The analysis has been revised for accuracy and to reflect developments in digital marketing practices.

Resources Consulted

Deloitte, “A Roadmap to Applying the New Revenue Recognition Standard." November 2025. Section 6.6.
PwC, “Revenue from contracts with customers.” July 2025. Question 4.6
KPMG, Handbook: “Revenue recognition.” December 2025. Section 5.7.
Crowe, “Digital Media and Marketing: Revenue Recognition Issues”. October 15, 2025.
ASU 2025-04 Compensation—Stock Compensation (Topic 718) and Revenue from Contracts with Customers (Topic 606): Clarifications to Share-Based Consideration Payable to a Customer