The TikTok Effect: What Social Commerce Means for Your DTC Brand

Key Takeaways for Ecommerce Brands:

1. ‍Social commerce has seen explosive growth, with revenues increasing by 750% between 2018 and 2024, reaching $688 billion.
2. By 2028, the global market is projected to surpass $1 trillion, driven by an expanding user base expected to exceed 1.7 billion people.‍
3. ‍Gen Z played a crucial part in TikTok Shop's rise in the U.S.: 56% of American Gen Ziers have shopped at TikTok Shop in the past year – almost two times more than other generations.
4. ‍‍While there are many benefits to selling on TikTok Shop, it also presents accounting complexities, such as reconciling discounts, shipping fees, and tax obligations.

In 2018, according to a study by market research firm Statista, social commerce accounted for less than 5% of global online sales, grossing roughly $81 billion. But times, they are a-changin’. In the last six years, the fusion between ecommerce and social media has grown by 750%, producing an estimated $688 billion in revenues in 2024 – a market share of almost 17%.

This trend is only set to continue. Per the Statista study, roughly 300 million people will start buying goods on social media in the next four years, expanding social commerce's user base to over 1.7 billion by 2028.

Additional findings include:

• 2024 saw roughly 80 million new users in social commerce, with their total number rising to over 1.44 billion.

• Global social commerce revenues are expected to grow by $100 billion per year, reaching over one trillion by 2028.

• North America – the second-largest market in the social commerce landscape – is forecast to see 55% growth and hit $148 billion in revenue by 2028.

From Facebook Marketplace to TikTok Shop:
The Evolution of Social Commerce

‍While its roots can be traced back to 2005, social commerce started to gain traction in 2016, when Facebook launched Marketplace – where users can buy or sell new and used items in their community. But Facebook wasn't done. In 2019, it launched Instagram Checkout, enabling brands to sell products directly within the app. A year later, it introduced Facebook Shops, which allows retailers to create customizable storefronts where people can purchase products. 

‍The emergence of social commerce as a retail channel was particularly noticeable in the U.S. A recent shopper sentiment report by ecommerce customer experience platform AfterShip, drawing on insights from 1,000 American shoppers, revealed that:

• Over half of Americans (52%) have purchased goods on social media.

• Men (22%) are significantly more likely than women (13%) to shop on social platforms weekly.

• Households with children are more likely to leverage social commerce than those without children (30% vs. 13%).

• 41% of respondents trust sellers with a social media presence more than ones without one; 30% said a social commerce presence positively impacts their brand trust.

 The rise of TikTok Shop, which launched in late 2023, accelerated the adoption of social commerce in the U.S. According to a survey by ecommerce marketing firm Omnisend, 33% of Americans have purchased an item on the platform. The survey's results show that Gen Z played a crucial part in TikTok Shop's success, as 56% of Gen Ziers have shopped at TikTok Shop in the past year – almost two times more than other generations. 

‍“With Gen Z rapidly entering the workforce and emerging as a formidable economic force, their unique preferences and digital fluency are reshaping the online retail landscape,” said Greg Zakowicz, senior ecommerce expert at Omnisend. “By launching an ecommerce platform and targeting Gen Z consumers, TikTok has entrenched itself deeper into the U..S economy.”

TikTok Shop Accounting:
Navigating the Financial Complexities

‍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:

‍How TikTok Shop works with 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.

How TikTok Shop works with sales tax

‍Unlike Shopify, TikTok Shop is a marketplace facilitator similar to Amazon. This means it is 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.

‍How TikTok Shop works with 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 accounting perspective, this can often overstate your actual 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).

Social Commerce as a Fundamental Retail Transformation

‍The meteoric rise of social commerce represents more than just a passing trend – it's a fundamental transformation of how consumers discover, interact with, and purchase products. 

‍With platforms like TikTok Shop driving unprecedented engagement, particularly among younger generations, businesses are presented with both incredible opportunities and complex financial challenges. 

‍As social commerce continues to evolve, retailers must be prepared to navigate the financial challenges these platforms present. Using a platform dedicated to ecommerce accounting, like Finaloop, will protect you from the complexities that inevitably accompany selling on dynamic platforms like TikTok Shop – and provide the financial clarity and control needed to confidently ride the wave of social commerce.