Financial Planning & Analysis

The Importance of Trade Spend Tracking

In the last few years, I worked at two different consumer goods companies – one for natural skincare, another for CBD. Their trade spend percentages had skyrocketed over the last couple of years, and their owners wanted that percentage reduced! At both of those companies, I became known as the “spend police.” My main responsibility was trade spend tracking, mainly against our budget and latest forecast.

Prior to the establishment of my role, the Sales team had not needed much approval or guidance on the trade activities they would invest in. I established the role of the trade activity bookkeeper, which involved policing how much they spent, understanding what kind of activities were required or advised in different retail accounts and tying that to what the company would like to invest in via trade spend. Both companies needed that buffer to ensure all promotional activities tied to the company’s marketing goals, such as being a low-price leader or eCommerce go-to brand.

What is Trade Spend?

Trade spend is the amount of money spent on promotional activities executed in the retail space to sell to consumers, and it is usually calculated and measured as a percentage of a company’s sales. Based on my experience, it is very important to track trade spend appropriately, as Gross versus Net Sales are such instrumental measurements of growth within a P&L.

Let’s walk through the process I implemented and followed at both companies for trade spend tracking, what worked and where there was room for improvement.

Trade Spend Tracking Process

Step 1

As part of the annual budgeting process, the Head of Sales and I created a trade spend budget as a percentage of sales based on:

  1. Historical rates,
  2. New initiatives the team would like to incorporate in the new year, or
  3. Alignment to industry standards.

Step 2

The budget was presented and approved by the leadership team and the Board of Directors.

Step 3

I created trade spend calendars for all the Sales team by account, with the budgeted sales and trade spend percentages, and calculated trade spend dollars. The calendars were shared with the Sales Team, and together, we populated them with the approved and planned trade activities and estimated trade spend dollars for the year.

Step 4

Every month, I updated the trade spend calendars with actuals based on inputs received from Accounting, and then met with the Sales team to get clarity on variances between actuals and initial estimates, cancelled or newly approved trade activities and any questions the Sales team may have on overall trade spend. The Sales team also had the opportunity to communicate any updated estimates to full-year gross sales by account, as trade spend was based on a percentage of sales (more/less sales, more/less money to spend in trade).

Step 5

I calculated trade spend accruals, communicated them to the Accounting team and explained all significant variances to the forecasted trade spend P&L impact each month.

Step 6

I presented the outputs of Steps 4-5 to the leadership team monthly and provided any potential risks and opportunities to our full-year budget view.

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What Worked in This Trade Spend Tracking Process?

Since my role of Senior Sales Analyst was new to both companies, I created the steps above based on my experience collaborating with Sales, Accounting & Finance and the leadership teams. Before I joined the companies, many different teams worked on budgeting, approving, estimating and actualizing trade spend, and no one owned the trade spend tracking process.

The following is what worked with this newly created process:

  • I, the Sales Analyst, solely owned the process, and all questions came back to one person versus multiple people. I would then funnel all questions to the appropriate party, ensuring there were no outstanding questions at the end of each month-end close.
  • The trade spend calendars could be accessed at any time by any member of the company, and they were updated with actuals and latest estimates monthly. This led to conversations across the company about utilizing price differentiation, retail marketing or ecommerce initiatives with our spend budget.
  • There was more transparency between Accounting and Sales in terms of actuals, as the Sales team noted actuals were not always communicated to them, or they did not understand where all the actuals came from.
  • Sales needed additional approval from the Head of Sales if their trade spend estimates were exceeding their budget. They could not run additional trade activities based on just verbal or emailed approval anymore. This started conversations about P&Ls analyzing potential lifts and expected ROI.
  • The monthly meeting to discuss Steps 4-5 above allowed the Sales team to be transparent with the leadership team through the Sales Analyst role. This also allowed the leadership to communicate any risks or opportunities to the Board of Directors in a timely fashion, versus having surprising updates at the end of each quarter.

Room for Improvement

Since the process we leveraged for trade spend management was entirely new, we had some hiccups and room for improvement along the way, which included:

  • It took a while for the Sales team to follow the new process, namely not approving any trade activities not on the trade spend calendars and within the budget.
  • The Sales team did not always agree with the budgeted trade spend percentages. They would spend a lot of time asking to increase their trade spend percentages, instead of working on the quality of the trade activities – choosing quantity over quality.
  • Prior-year trade spend was not accrued appropriately and would be included in the current year actuals, skewing the forecast.
  • The Sales team approved fixed-cost activities, while corresponding sales decreased. They consecutively did not reduce the number of future trade activities to still stay within budget. They also anniversaried trade activity from the prior year, while adding new trade activities advised by the account’s buyers.
  • Some trade activities performed better than they did the prior year, so the trade spend for the current year were sometimes underestimated.

Final Insights for Trade Spend Tracking

Even though the process was not perfect, I felt like it helped both teams budget, forecast, understand and track trade spend better. All members of the teams, from the Sales team leads to the CEO, understood what we were doing trade-spend-wise in the market. It also started interesting conversations about where the company wanted to invest their budget dollars or what they wanted the company to be known for, such as being the low-price leader or being the go-to company via eCommerce.

If given the opportunity to hold this role within one of our Clients, I would aim to find ways to remediate the areas of improvement, while emphasizing the positive upsides that this process has brought to my prior engagements.

8020 Consulting has a team of 100+ finance and accounting Consultants who are ready to support your company in achieving its objectives. If you’d like to learn about how we work with our Clients in FP&A projects, you can visit our service area by clicking the image below:

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About the Author

Lizzette is a Deloitte alumnus with 12+ years of diverse experience in finance and accounting. Her experience is within the entertainment and media distribution, consumer products, pharmaceutical and CBD industries. Prior to joining 8020, she held roles at NBC Universal, Galderma (previously known as Nestle Skin Health), Yes To and Medterra Marketing. Her experience includes providing analytical support through financial modeling, budgeting, forecasting and internal and external data reporting; cost controllership at a company-level; trade spend tracking; inventory management; pricing stewarding and conducting business process improvements and various system implementations. Lizzette holds a B.S. in Accounting from the University of Southern California.

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