‘Working Trade’ vs ‘Non-Working Trade’

Non-Working Trade

Essentially, by non-working trade, we refer to dollars that do not get to the consumer, do not drive targeted distribution, and do not drive repeat purchase.

Examples of Non-Working Trade

    • OI’s & the Resultant Forward Buying
    • Non-Targeted Slotting/Free Goods
    • Administrative Fees
    • Short Coded Buy Downs
    • Unauthorized Deductions That Need to be Repaid

Working Trade

Working Trade is targeted spending with retailers to drive growth, your brand franchise/equity, and represent dollars reflected at the consumer level.

How Can You Measure This?

While short-term results may be difficult to measure, retailer level case growth is a barometer. Longer-term consumption growth, reduced spending per case, and reduced slotting are key metrics. Also, spending can be evaluated and measured by ROI, ‘cost per incremental case’, and customer profitability longer term.

So When Do You Begin to Evaluate This?

It is important to note that these are not ‘big company’ approaches – companies under $10M address some or all of these areas when discussing working trade vs. non-working trade.

On-Demand Webinar - Working Trade vs Non-Working TradeNatural-Specialty Trade Spending Webinar (On-Demand)

Would you like to learn more about ‘Working Trade’ vs. ‘Non-Working Trade’? We have developed an educational webinar for CPG manufacturers in the natural-specialty segment, and invite you to join us at your convenience for this on-demand webinar. Feel free to reach out on LinkedIn to learn more about Adesso.

What is Trade Spending or Trade Promotions?

 Trade Spending, or Trade Promotions, are expenditures paid directly by a manufacturer to the retailer or distributor within the Consumer Packaged Goods (CPG) industry.  However, the purpose of trade spending is to encourage promotion via discount, secure additional distribution and shelf space. Also, drive additional volume, form a percent discount from list price, an amount per unit, and it can be a fixed or lump-sum payment for merchandising provided by the retailer. In other words, trade spending or trade promotions is everything a brand spends in order to have their product put on a shelf.

Examples of Trade Promotions include:

  • Off Invoice Allowances
  • Slotting Allowances (‘Free Fills’)
  • Retailer Promotions (Scan-Downs, Ad Fees, Display Allowances, etc.)
  • Administrative Charges, Late Fees & Other Distributors Deduct
  • Manufacturer Charge-Backs (MCBs)
  • Short Coded, Pickups & Discontinued Product
  • Distributor Food Shows & Promotions
  • Performance Allowances
  • Case Purchase Allowances
  • Rebates

The ‘Pink Elephant’ is a Major Expense on Your P&L

The Pink Elephant in your P&L chart.
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Trade Spending is the ‘Pink Elephant’ on Your P&L – 

Time to talk about trade spending – a major expense in your P&L. You are a team of professionals, who manage a small business with tenacity and care. You can account for your Cost of Goods, your HR expenses, G&A and others down through the line item level. In some cases, you can even account to fractions of a penny – yes every dollar matters!

Knowing these is critical to managing your business. Furthermore, you also analyze these, make decisions where to invest more, cut back some, or spend the same to get a better bang for the dollar.

In fact, not only does your internal management teams drill into these numbers regularly, but your investors have a keen interest what the returns are as well. We all know the drill at a small or emerging company.

THE BIG QUESTION IS: Can you account the same for your trade promotion spending in your P&L?

Undoubtedly, this area confuses and challenges many Natural-Specialty-Organic manufacturers. They don’t analyze it, and many simply ‘sweep’ all of the distributor deductions into broad categories to clear the short-pays too! Every trade promotion expense has (or should have) a contractual agreement with a distributor or retailer.

Similarly to every other line item on your P&L, your finance team should be able to account for every dollar deducted by a distributor or retailer.  You should have the same level of scrutiny & granularity as any other GL area.

In sum, maybe it’s time to address the ‘pink elephant’ on your P&L, a.k.a. trade spending – and have your team make better and more effective decisions with these significant dollars. Our other client partners do!

We can be assisting within weeks with practices, processes and systems. It will save you time and it’s extremely affordable.