Ron Rubens
Navigating the Trade Promotion Maze
Ron Rubens : Oct 31, 2023 3:56:53 PM
Navigating the Trade Promotion Maze: Top 5 Challenges CPG Companies Face and How to Overcome Them Trade Promotion Management (TPM) is a vital...
In the fast-paced world of Consumer Packaged Goods (CPG), understanding your Key Performance Indicators (KPIs) for trade promotions is crucial. Here's a deep dive into the attributes you should consider when calculating your promotion KPIs.
| KPI | What is the KPI | Description of the Trade Promotion KPI |
| Estimated Trade Spend | What you think will happen. | Promotion planning starts with creating a future promotion with an estimated volume and trade spend. This KPI is used by the approver to approve or reject the promotion. Estimated Trade Spend is a forecast of the total cost and financial impact of your promotions based on your allowances and estimated quantities. |
| Latest Estimate of trade spend (LE) | What is most likely to happen. | LE is the current forecast of the total cost of the trade event using data that wasn’t available when the promotion was created or approved. Use LE as a real-time forecast into what the promotion will do as it moves through its lifecycle: Future, Active, Completed, and finally Closed. |
| Maximum Liability | This is the maximum the deal should cost. | Sometimes not every case sold or forecasted will be eligible for the trade promotion discounts. If you anticipate redemption is less than 100%, Expected Liability will be less than Maximum. Maximum calculates your liability assuming 100% of all qualifying sales are eligible for your allowances. Some companies use this to understand their maximum financial liability. |
| Expected Liability | The total deal cost so far, including paid and unpaid amounts. | Expected liability takes into account a redemption factor when not all volume during the promotion is eligible for trade allowances. This is a better measure to use when evaluating payments and promotional claims. Any payment in excess of what you owe is an over payment and should not reduce your promotional Net Liability. |
| Actual Trade Spend | What has been paid or resolved to date. | This shows what has officially been recorded as of today. Your ERP and TPM solution keep track of what you sell, ship, and in addition to promotional settlements by event. |
| Net Liability | What you owe but haven’t paid. | Net Liability is an important trade promotion measure that is typically not available unless you have a true TPM (trade promotion management) solution. Use this KPI to anticipate future promotional payments and deductions. ERPs and TPM solutions can use this information to anticipate future promotional claims and create event-based accruals. |
| Overpay | What you paid above what you owed | Use this measure to identify promotions where the amount claimed or deducted was greater than the calculated amount you owed. The overpay KPI is used to more accurately calculate Net Liability. |
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