Cutting waste from trade spending

Most consumer goods companies today are suffering from ever-escalating promotional dollars invested with retailers.At the very best, these dollars simply maintain present sales volume.Although trade spending levels can seldom be reversed, once given, there are many ways to cut wasted dollars...

Most consumer goods companies today are suffering from ever-escalating promotional dollars invested with retailers.

At the very best, these dollars simply maintain present sales volume.

Although trade spending levels can seldom be reversed, once given, there are many ways to cut wasted dollars and improve the payout on dollars invested.

For the typical manufacturer with $100 million in net sales and $25 million in trade spending, there is likely $1 million in savings available for the taking from better trade program management.

Let’s look at the four key areas in which my clients find they are wasting trade dollars.

Deductions are a great source of increased revenue for most retailers.

They get away with it because most manufacturers are not geared up to handle it. There is likely $200,000 of unjustified deductions available for the taking.

Recent foward buying practices of retailers often result in overspent off-invoice allowance budgets.

Promotional volume

If promotional volume is allocated on the basis of a retailer’s ability to buy an eight-week supply, then manufacturers will eliminate this overspending. There is probably $150,000 in savings here.

Most manufacturers are not organized effectively to run trade promotions.

Each promotion must be clearly defined and internal roles and performance criteria established. Then a follow-up mechanism must be put in place to ensure retailers keep their part of the bargain.

If they do not, the key account manager should request make-goods or corrective action. There is likely $100,000 wasted on non-performance by retailers.

There is probably another $100,000 in overspent budgets which occur when a retailer’s revenue falls short of expectations and promotional dollars are already spent.

Disciplined quarterly reviews in which commitments versus actuals are tracked, and adjustments made before any overspending, will solve this problem.

Credits on future spending will work on fourth-quarter overspending.

I would guess there is another $100,000 of misdirected spending on customized key account promotions in which promotional dollars are ineffectively targetted against the wrong audience.

Marketing strategies must form the basis of detailed sales plans.

Over-and-above spending has become a catchall phrase used to solve unexpected trade demands and volume shortfall problems.

Let’s acknowledge there is a place for a business development fund.

A fixed, rather than an ever-rising, budget set within the operating plan should be established and controlled by the head of sales to ensure budgeted volume achievement.

However, once it is gone, it is gone. There is at least $200,000 in savings here.

It is probably safe to say that most key account managers make poor accountants. However, retail buyers have become skilled at meticulously recording every commitment made by manufacturers.

Manufacturers must stop the infighting between sales, finance and marketing departments, and get organized.

Budgets must be established by product, by region, by territory, and by account.

Information systems must record all commitments and actual spending versus those established budgets.

In this way, when one key account manager leaves a company, all prior year records are not lost.

A monthly tracking system will catch any overspending so corrective action can be taken before year-end. Additionally, evaluative information systems will better equip marketing and sales to analyze the effectiveness of trade programs.

Account p&ls will help sales organize spending by account and lead to a better payout on invested trade spending dollars.

Manufacturers may not initially be able to reduce spending with unprofitable retailers. With time, however, a shift in spending priorities to more profitable retailers will compensate for volume losses from less profitable performers.

Better control systems and proper evaluative analysis of trade spending should generate another $150,000 in savings.

Policies and procedures for each trade promotion, once established, must be adopted by sales, finance and marketing.

Training is essential so that all those involved develop a complete understanding of their well-defined role in improving trade program management.

So, there you have it. We have just seen how $1 million in savings can be generated without showing a loss in volume.

By clearly defining trade programs and the distinctive roles of sales, finance and marketing, by installing proper policies and procedures and control systems, and by conducting proper staff training, extra profits are there for the taking.

Shirley Roberts is the owner of Market-Driven Solutions, a marketing and sales consulting practice in Mississauga, Ont.