How to Manage Trade Spend

Food and beverage brand owners face an uphill battle in bringing their products to customers. The never-ending fight for shelf space, product visibility and distribution partnerships is exhausting but necessary. And then comes the added challenge of figuring out whether those vendor relationships and promotions you invested in are even paying off.

In a crowded and fickle industry, getting up close and personal with the intricacies of trade spend management can help you understand and manage finances on a whole new level. Here’s your ticket to getting a leg up on the competition and a foot in the door of your dream retailer.

Understanding Trade Spend

Trade spending is the practice of spending money to support the marketing and sales of all the products in your company’s portfolio. The funds allocated for trade spend often takes up a big chunk of your total budget — often second only to the money you’re spending on the actual product (aka, cost of goods sold, or COGS).

For a winery, trade spend would likely encompass things like paying for shelf space, offering retailers volume-based rebates and launching an ad campaign highlighting your newest Bordeaux-style red blend.

For a food-centered enterprise focused on consumer packaged goods (CPG), trade spend might look like money spent for product placement on a grocery store aisle endcap or what you’ll pay back to retailers when customers cash in the coupons you had printed up in the Sunday paper.

All those discounts, free product giveaways, promotional wine tastings, demos, cash incentives and ads can put quite a dent in your bottom line. That’s why it’s so important to properly calculate trade spend so you have a better picture of your true return on investment (ROI). Otherwise, you could think you’re making a profit and not realize you’re spending more to move cabernet and artisanal soda than you’re making from the final sale.

How to Manage Trade Spend Effectively

Efficient and effective trade spend management starts with gaining a thorough understanding of the key financial metrics that most affect businesses in the food and beverage sector. The goal is to maximize ROI by ensuring budget and strategic efficiency. In other words, we’re ensuring you get the biggest bang for your buck while making the most out of every outreach campaign and influencer partnership.

Here are some tools and tactics that help improve trade spend management, including tracking and analysis:

• Capitalize on existing tech. Set aside your trusty abacus and upgrade to multitasking accounting software that can play an integral part in building and maintaining your new financial road map. These platforms, combined with inventory management setups, can help you track KPIs like gross profit margin, inventory turnover, cash conversion cycles, operating profit margin and the almighty ROI.

• Leverage trade spend data to make more informed budgeting decisions. You can use the data captured with the tools and techniques in the bullet above as you formulate your next steps. Look at consumer behavior patterns, market trends and year-over-year data to pinpoint what’s working and what isn’t.

• Use best practices for planning and forecasting. Trade spend shouldn’t be a spontaneous expense. To get the return you expect, you need to be strategic with your financial modeling, including how you build a budget, account for variances and benchmark performance against your industry peers. Things like constructing a trade calendar, forecasting the total value of a promotion and knowing when to analyze and refine campaigns can make all the difference in what kind of rewards you’ll ultimately reap.

• Feel free to negotiate. Most, if not all, forms of trade spend involve you giving something to a supplier, retailer or other invested partner and expecting something valuable in return. This could look like a free product to an influencer who will then post about your food or beverage or a bulk discount for a vendor who promises premium product placement. Just remember that the opening offer isn’t set in stone. Evaluate performance according to preset benchmarks or milestones and adjust your agreement as needed.

• Focus on collaboration. While you’re busy poring over trade spend patterns of the past and plotting for the future, don’t forget to loop in the rest of your team. Trade spend isn’t just a marketing expense or just a function of R&D. It’s an integral part of those departments, as well as sales, finance and even supply chain management. It’s crucial you’re all in alignment regarding short- and long-term goals, budget breakdown and your blueprint for getting from point A to point Z.

Common Pitfalls in Trade Spend Management and How to Avoid Them

There are a lot of balls in the air when you’re learning to juggle the finer points of trade spend optimization. It’s easy to stumble and lose your balance. But if you get to know common trade spend management pitfalls ahead of time, it becomes much easier to avoid them.

Spending Without a Strategy

All trade spend is an investment, and every investment should be made in alignment with your overarching goal. No goal? Then not a single dollar should leave your account. Start your planning by choosing a goal that’s SMART (Specific, Measurable, Achievable, Relevant, Time-Bound) and make sure every promotion or alliance you craft from then on is in service of that goal.

Failing to Check the Data

You need to leverage KPIs to inform your decision-making, and you need to do it regularly. You’re looking not just for the actual numbers but also for context and patterns. Are certain KPIs trending up or down? Does a dip or spike correspond with a special event or larger market shift? You’ll only know the answers to those questions if you’re monitoring analytics.

Relying Solely on Discounts

Dropping your price can entice buyers to take a chance on your brand, but it can also devalue your product and destroy your ROI. Sales and rebates should be a small part of a larger plan, not your sole strategy.

Lack of Consistency and Communication

If you’re running multiple promotions or working with a variety of vendors across brick-and-mortar and digital spaces, it’s vital you scrutinize your branding and have open channels of communication. Ads that seem contradictory — for example, calling an all-natural chocolate product “a healthy candy alternative” in one ad and “a luxurious indulgence” in another — can be confusing and even erode consumer confidence.

You can avoid this pitfall by keeping everyone on the same page. Team meetings, collaborative communication platforms like Slack and a single point of approval for all trade spend efforts is a good start. Putting together a standard vendor agreement and marketing style guide can also help.

Taking Control of Your Trade Spend

Trade spend management is a necessary but potentially complex part of running a wine or specialty foods business. Learning budgeting tactics for winery and food finance, understanding what’s hot in F&B and nurturing collaborative partnerships can potentially make or break your business.

If this all seems like a lot of work, the truth is that it can be. Setting up a kiosk at a specialty foods convention and handing out samples sounds like fun. But the time, effort and expenses put into meet and greets and marketing blitzes can be all for naught if you don’t know what your goal is or how well all those endeavors are paying off. And that means taking time away from designing rebate booklets and talking up your most recent vintage to crunch some numbers.

Luckily, there are experts available who can spearhead your trade spend management so you can concentrate on all those tasks that won’t get done without your TLC. For personalized financial consulting assistance and help optimizing your business strategies, reach out to Balanced Business Group today.