Certainly! Here's an example to illustrate the concept:
Imagine that your company, PromoCorp, enters into a contract with UniTel, a telecommunications provider, to promote their mobile SIM cards. Under the contract, PromoCorp is responsible for creating an integrated marketing campaign that includes using various channels such as social media platforms like TikTok and search engines like Baidu.
To demonstrate that PromoCorp is acting as the principal in this arrangement and can recognize revenue on a gross basis, the following evidence could be provided:
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Contract Terms: The contract explicitly states that PromoCorp is responsible for the delivery and success of the marketing campaign. It also outlines that PromoCorp has the discretion to select the marketing channels and strategies to be used.
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Control Over the Services: PromoCorp has the ability to direct the use of TikTok and Baidu for the marketing campaign and can make decisions about the content and timing of the promotions.
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Pricing Authority: PromoCorp sets the price for the marketing campaign independently without needing approval from UniTel, indicating that it has pricing discretion.
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Inventory Risk: PromoCorp purchases advertising space on TikTok and Baidu in advance and is responsible for filling this space with effective advertisements. If the campaign is not successful, PromoCorp bears the risk of not recouping these costs.
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Financial Risk: PromoCorp is paid a fixed fee plus a performance bonus based on the success of the campaign. This indicates that PromoCorp has the potential to earn more if the campaign is successful, aligning its compensation with the performance of the services.
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Customer Interaction: PromoCorp directly interacts with the end customers (the audience on TikTok and Baidu) and collects feedback to adjust the marketing strategies as needed.
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Marketing Materials: PromoCorp creates and distributes its own marketing materials for the campaign, further demonstrating its control over the promotion services.
By providing this evidence, PromoCorp can support its position that it is acting as the principal in the arrangement with UniTel and, therefore, can recognize revenue on a gross basis, including the total value of the marketing services provided to UniTel.
