TikTok Shop Has Shown Remarkable Resilience, But Can Your Books Keep Up?

Key takeaways for ecommerce brands:

1. After a temporary U.S. blackout, TikTok has retained about 90% of its user traffic and most of its creators and saw a $5 million week-over-week increase in sales on TikTok Shop.

2. Industry experts increasingly believe that TikTok will ultimately be sold to a non-Chinese company rather than face a permanent ban, encouraging brands to maintain their presence on TikTok Shop.

3. Success on TikTok Shop requires careful financial management. From properly accounting for creator product samples to managing the platform's unique sales structure, brands face significant challenges in keeping accurate books

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A couple of days after TikTok's brief shutdown in the U.S., people started listing phones preloaded with the TikTok app for thousands of dollars. One user listed their iPhone 15 with TikTok on Facebook Market, asking for $9,000. Another wanted $10,000 for his iPhone 14 Plus. And one eBay seller went so far as to ask for $50,000 for a Samsung Galaxy Note9 with the TikTok app preinstalled. “The lowest I'll go is $15,000,” he told the BBC.

A quick recap: On Saturday, January 18, a few hours before a law requiring its Chinese owner to sell it on national security grounds or face a ban took effect, TikTok briefly went dark in the U.S. Hours later, following President Donald Trump's promise to postpone enforcement of the ban, the app came back online. Apple and Google have just reinstated TikTok to their app stores, hence the demand for phones preloaded with the TikTok app up until now. 

Despite remaining off app stores, TikTok's popularity hasn't waned. Data from Cloudflare shows that the app has maintained about 90% of its user traffic in the U.S. Meanwhile, alternatives such as RedNote – whose app enjoyed a huge surge in downloads following the Supreme Court’s decision to uphold the TikTok law – saw their traffic fall rapidly once the shutdown ended and have continued to decline since then.

TikTok also managed to keep most of its creators, many of whom refuse to believe it will ever get banned for good. “I’m going to believe it when I see it,” said Michael DiCostanzo, who has more than 2.3 million followers on TikTok and doesn't see a platform capable of replacing it. "I don’t know if YouTube Shorts or Reels can ever replicate that sense of community."

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Post-Shutdown Success: A Spike in Sales and Higher Profit Margins

That sense of community is particularly evident at TikTok Shop. When the blackout occurred, people in the TikTok Shop universe were there for each other. “In these moments of uncertainty, there’s a lot of fearmongering, a lot of misinformation,” said Leslie Ann Hall, CEO and founder of ecommerce agency Iced Media, who advised her clients to act like it's “business as usual on TikTok.”

In the short term, the advice has served TikTok Shop sellers well. Per software solutions company SOTI, TikTok Shop sales spiked during the week of January 18, seeing a nearly $5 million week-over-week increase compared to January 12-19, 2024. Plus, brands that stayed on the platform after the blackout saw higher profit margins due to, in part, lower customer acquisition costs.

“The brands that are either reallocating or maybe leaving the platform preemptively are creating huge opportunities for those brands that are sticking around,” said Hall. “In the week following the ban, our clients that reopened their shops and restarted their campaigns within 24-48 hours were the biggest winners.”

In the long term, of course, those brands will remain winners only if TikTok is sold to a non-Chinese company. Most experts believe it will. “If I had to, I would bet on that,” said Ravi Ramamurti, Professor of International Business & Strategy at Northeastern University. “It was a game of chicken up to this point, (but) ByteDance (TikTok’s parent company) has exhausted its legal options.”

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Mind the Gap: TikTok Shop's Unique Accounting Challenges

Assuming the sale will go through, TikTok Shop – the fourth-largest ecommerce marketplace in the U.S. – will continue to be a great option for DTC brands. But while there are many benefits to selling on TikTok Shop, it also presents some challenges. 

That's especially true when it comes to ecommerce accounting. The main challenge brands selling on TikTok Shop face is setting up their financial process in a way that ensures they have real-time visibility into performance. Let's take a look at some of the complexities:

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TikTok shop sales

When you sell a product to a customer on other sales channels, it generally includes a few components that make up the sales price – you have your product price, reduced by any discounts, plus any shipping income or sales tax.

TikTok Shop works differently. Your TikTok Shop sales will include:

• Product item subtotal before discounts
• Minus: seller discounts
• Minus: TikTok Shop Discounts
• Plus: Shipping fees
• Minus: Seller shipping fee discounts
• Minus: TikTok Shop shipping fee discount
• Plus: Sales tax

Many Shopify sellers prefer to connect TikTok Shop to Shopify to manage sales in one spot. This is where things begin to get complicated, as the total TikTok Shop platform discount is not reflected on Shopify. This is one of the key reasons many bookkeepers have trouble reconciling the actual TikTok payout to the cash collected that is displayed on Shopify.

TikTok Shop sales tax

TikTok Shop is a marketplace facilitator similar to Amazon. This means it is generally responsible for calculating, charging, and remitting sales tax on behalf of the merchant.

Though TikTok Shop sales won't result in a sales tax liability that you need to pay out, it can impact your nexus thresholds in specific states. This can make you liable for taxes on your Shopify sales that previously didn't reach the necessary thresholds.
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TikTok Shop free product samples

Creators on TikTok Shop will often request free product samples. These product sample orders are generally brought into Shopify as a regular sale with a 100% discount.

From an ecommerce accounting perspective, this can often overstate your sales and discounts without giving you a clear picture of your actual revenue. Depending on your accounting setup, the best way to view this is to exclude these orders from your sales and your discounts and instead record them as a marketing expense (or, in certain cases, as COGS).

Looking Ahead: The Key to TikTok Shop Success

Despite initial concerns over TikTok's legal troubles in the U.S., the platform has shown remarkable resilience. Its ability to retain most of its traffic and creators, plus the recent surge in sales on TikTok Shop and general optimism about a coming sale, indicate that the app is poised to remain a powerful channel for DTC brands seeking to reach engaged audiences.

However, success on TikTok Shop requires careful financial management. From properly accounting for creator product samples to managing the platform's unique sales structure, brands face significant challenges in keeping accurate books. Utilizing an ecommerce accounting solution like Finaloop can help businesses maintain financial clarity and confidently embrace the opportunities presented by this dynamic marketplace. 

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