Distributor chargebacks and deductions can do significant damage to brands, costing them millions of dollars annually. While many of these charges are stipulated in the distributor agreement, a sizable portion is mistakenly levied on brands. In fact, industry experts estimate that invalid deductions amount to anywhere from 10% to 25% of a brand’s annual trade spend. Unfortunately, the burden falls on brands to challenge and rectify these inaccuracies.
As a former CPG brand founder who started one of the first organic skin care lines, I have been in the trenches and experienced the highs and lows of getting a product to the shelf, growing doors, then losing those doors. Still, by the time I started Promomash, I knew only a fraction of what I now know about what it takes to survive and thrive in retail. I boil it down to three key areas I’ll call the "trifecta" of good trade management —three things you need to be successful managing trade in retail.
- Plan & Forecast
- Understand Baseline & Lift
- Track & Manage Deductions
Having a grasp on each of these areas is going to be challenging without the right tools, processes, and discipline. But don’t worry – I'll provide some guidance on how to get there. Let’s get started...
And by the way - if you want to hear my full unfiltered take on this topic, check out the Foodbevy Startup to Scale podcast episode Breaking Down Distributor Deductions and Chargebacks where I explain each of these points with Jordan Buckner.
1. Plan & Forecast
Having a plan that includes at least an educated forecast of ALL your expenses—MCBs, OIs, EDLPs, free fills, spoilage, etc.—is essential. You need to be able to have some idea of what your trade spend will be as your brokers and other team members negotiate tactics and promotions. That includes estimating the deductions that will result from planned promotions and marketing activities.
When you gather all these costs, you need to set your brand and your team up for success by having two things: the right (non-spreadsheet) tool to manage the plan, and the discipline to create, track, refine, and optimize the plan with all the information gathered.
Let me emphasize why a “non-spreadsheet” tool is necessary: even the most beautifully organized spreadsheets - and I have seen some beauties - are not dynamic, and the data needs constant updating in several places to work. This part alone can be very taxing. Using a dynamic platform that can keep your pricing and cost data updated without having to make multiple entries is what you want to shoot for.
If you're a young brand moving fast, I bet you’re starting to feel overwhelmed already. That's why Promomash exists! We provide not only the platform to manage your trade plan with TradeGenius, but a dedicated extended team to do the heavy lifting of setting it all up and working with you to ensure all your data is accurately flowing in.
2. Understand Baseline & Lift
If you're proactively measuring the performance of your brand in stores (and I really hope you are), the equation is not complete without knowing your sales lift: base velocity plus incremental volume over time that results from promotion. Why is this important? Because it will essentially tell you whether you will be headed for discontinuation, or whether what you’re doing to promote your product is working.
To know your sales lift, you need accurate point-of-sale (POS) register data. This data can come from various places. Typically, brands will pay a hefty subscription to SPINS, Nielsen or IRI to access this data, which is a month old by the time it’s delivered. Some retailers will provide this data directly as well, but it requires heavy manipulation and spreadsheet work to become usable.
Crisp is another option that eliminates all the data hassles for brands, providing sales and shipment data refreshed daily from all major retailers and distributors in one clean dashboard. Even better, through our exclusive Promomash + Crisp integration this data is fed right into Promomash reports and dashboards to provide insights not available anywhere else (including baseline and promoted sales). Near real-time sales lift, no 30-day lag time, no manual spreadsheet work.
Whichever way you get your data, make sure you can at least use it to understand your baseline and lift. Once you've got that clarity, you'll be able to better assess the health of your business with/without promotion, make necessary decisions to grow, and optimize trade spend to achieve your brand's goals.
3. Track & Manage Deductions
I don’t think anyone would disagree with me when I say that managing deductions is important for your brand's financial health...but it is much easier said than done. Why is it so hard? It takes multiple teams – sales, accounting/finance, marketing - talking to each other, aligning and collaborating constantly to ensure deductions are properly reviewed, matched up to planned promotions, validated, and then disputed when invalid charges are found. As you can imagine, this is a tall ask for brands with small teams that are already stretched enough as it is.
Depending on where your brand is in its growth journey, maybe it’s not worth the time yet to invest in a process for deduction management. But if your brand is growing its number of doors and revenue is approaching $2M or more, it very likely is time to take deduction management more seriously. You have two options: develop a sustainable process you can manage in-house or outsource to a third-party service.
If you decide to manage in-house, make sure all involved teams are talking to each other regularly and work together to validate charges, match them up to the correct promotions, and categorize them appropriately based on reason. When invalid charges are found, talk to your customer to clear up any issues quickly. Keep detailed records of all transactions, deduction invoices and backup documentation so you can easily reference them if there are disputes.
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If this all feels like too much and you consider outsourcing deduction management, I’m going to do another shameless plug here - my team at Promomash is here to help. Our DeductionGenius service is more than a platform. It’s a whole team of experts dedicated to handling your deductions accurately and in a timely way. And when it’s time to dispute, we fight for you and don’t stop until we recover those bad deductions. The best part is when you can simply look at a dashboard and in 2 seconds know exactly what your trade spend was by customer, by reason code, sliced and diced however you want it.
So, there you have it: the Trade Management Trifecta. I hope this was helpful. And when it comes to making your products successful in retail, we’re always happy to help - just reach out!
