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net revenue (agent vs principal)

Also called: agent vs principal

Revenue reported as the company's own share when it acts as an agent that connects buyers and providers; a principal that controls the service reports the full price and the provider's share as a cost.

When a company sells a service that someone else delivers, accounting asks one question: who controls the service before the customer gets it? A principal controls it: it makes the promise to the customer, chooses and replaces the provider, answers for quality and sets the price. It reports the full price as revenue and the provider's share as cost of revenue (gross presentation). An agent only arranges for another party to deliver: it reports just its commission as revenue (net revenue).

The test is about control, not about whose account the money passes through. A marketplace that collects the whole payment and forwards the provider's share is still an agent if the provider runs the service. And one company can be both: an agent on its marketplace, a principal on a contract where it promises the work itself.

The choice changes revenue and every margin, but not gross profit in money. That is why gross margins of two companies, or of two lines in one company, can only be compared once you know how each presents its revenue. Presentation follows the facts of the contract; it is not a lever for making the top line look bigger.

Example

At Klasna, families choose a tutor and the tutor gives and answers for the lesson: Klasna is an agent and reports its commission. On Klasna for Teams it signs with the company, picks the tutors and replaces them if needed: there it is the principal. One Teams lesson both ways, in UAH:

Gross (as reported)
Net (as if an agent)
Revenue
800
800 − 430 = 370
Cost of revenue
430 tutor + 31 video and AI = 461
31
Gross profit
339
339
Gross margin
339 ÷ 800 = 42.38%
339 ÷ 370 = 91.62%

The same works at company scale. Had the autumn quarter's 1:1 lessons been shown gross, revenue would be 6,832,760 + 10,061,190 = 16,893,950 instead of 6,832,760. Gross profit stays 5,108,699; gross margin falls from 74.77% to 30.24%.

Common mistakes

  • Deciding by the money flow. Collecting the full payment doesn't make a company the principal; control of the service does.
  • Switching to gross to grow the top line. Gross profit doesn't change, and the margin collapses.
  • Comparing gross margins across lines or companies. Check the presentation first, or compare gross profit per unit instead.
  • Using one presentation for the whole company. Each product line is judged on its own contract.

Learn it in the course