proper accounting for coupons

[Chas]

My two cents, both school of though have validity. The key here in the end is accountability. By driving the promotional discount to advertising it will allow one to easily monitor the success of the service marketing campaign, but at the same time actual gross profit on the sale would be overstated and it would likely lead to an overpayment of commissions bonuses based on gross profit.

I vote that a service promotion be treated like all maintenance menu items, with a predetermined operation code on the promotional item that the adviser would use (may need a couple) when they are generating a repair order that has a fixed Labor Price, a predesigned fixed Parts Package price, and finally a Job Description which creates true value into it which the service customer will read while reviewing the repair order billing.

This technique than would guarantee that all parties involve are participating accordingly in the promotional cost, controlled by the selling price and could potentially keep the sales tax man off your back when it come to the issue of coupons being taxable or not.

Additional points of interest are; if youre a GM dealer dont forget about that magical parts transfer, if I were a Parts manager I would not want to have an overinflated gross profit value used when calculating the parts transfer. As for tracking the success of the marketing program that could easily be done by monitor the number of times that specific operation code was used.

[MuDDy Thoughts]

Be very careful if your not setup to take this against your gross, as I believe it should be. The "cashiering" option available to the service department can kill you in parts, all charged to advertizing, parts policy, almost anything. Check the "pay type" RPT setups in service for an eye opening experience. UPT is the setup option.

MuDDy

[JustBob]

Great responses to the origonal post. One thing is clear - track it.

One other thought:

Personally I have alway thought it better to show the "list" price with a stated discount on the customer copy (even having the cashier highlight it) rather then just showing the reduce price only. If you are "giving" something away let the recipient be aware of it. To me a "discount" from list is more tangible then a low price. Walmart thinks differently but they build their advertising around low cost.

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Have a tremendous day
Bob Britting

[TheOne]

The proper way is to bill the labor operation as if there were no discount, and then take the discount to the advertising budget. It should not be a gross profit reduction unless EVERYONE gets the discount. A coupon is NOT a cost of sale anymore than the paper you printed the RO on is. It is a customer incentive to bring the customer to your door, just like three cans of beans for a dollar at the grocery store. Its whole purpose is to drive traffic so you have opportunity to sell profitable work. Can you define "advertising expense" any more clearly?

For the record, "cost of sale" is the net cost of those items specifically required to fulfill the obligation.

Those of you worried about skewing the effective labor rate by not taking the discount as a gross profit reduction are tripping over pennies when you are surrounded by dollars. This would only be an issue if the LOF labor op was built at posted labor rate.

[texaslp]

Like I said in the beginning there are two schools of thought on this one and one of them is wrong. You are right that it's not a cost of sale, it is a reduction to the sale amount.

Besides other considerations already mentioned do you realise that by falsely inflating your sale amount, you are falesly reporting your sales totals on sales tax reports and overcharging sales tax?

In some states, depending on how franchise taxes are calculated, you could also be over paying franchise taxes.

If the coupon is for 3 cans of beans for $1.00, I'm sure the grocery store records a sale of $1.00.

[TheOne]

Look at your grocery store reciept. The discount is recorded so that you can see the savings, and the sales tax is charged on the amount COLLECTED, not invoiced

[gmcgrew]

Looking at Theone's and Texaslp's differnce's is not a simple difference. Looking at it from the sales tax perspective one question would need to be asked first. Is everything taxed the same? Many states don't tax labor but do tax parts and supplies. If the discount is taken for parts, supplies and labor the sale price of each must be modified before taxes are figured. Theoretically I agree with Theone's viewpoint but it may not be correct from a tax standpoint.

[ZOOM1]

I also agree with TheOne,as long as tax issues are dealt with correctly.I would consult an attorney on the matter to be sure.Don't need the tax man knocking on the door....

[texaslp]

The tax man won't care much because you're over paying.

I suspect those who agree with charging the difference to advertising are paid off gross not net.

So here's an idea. Why not drastically inflate the "regular" price of your oil change and other maintenance items, then give everybody the coupon price. Voila! instant boost to your gross profit.

[TheOne]

Texaslp

There are easier ways to screw up the financial. The question wasn't one of extremes. Regular price is regular price and should be reasonable compared to the market....