Every Trade Dollar Needs a Job Description: What a $100M Budget Taught Me About Your $50K One
I’ve been managing trade budgets since 2008, and at Johnson & Johnson those budgets ran up to $100 million. That’s a number most founders I talk to will never need to manage, and that’s fine. You don’t need the budget to borrow the habit.
Because the habit is the part that matters. And it’s the part that almost never makes it down to the kitchen table.
Here’s what I mean.
Trade spend isn’t a cost of getting on the shelf
When a founder first walks me through her numbers, trade spend usually shows up as one big line. Slotting, promos, free fills, demos, scan-backs, deductions, etc., all rolled together, and filed in her head under “the price of doing business with retailers.”
I understand why. When you’re the one packing orders and answering the buyer’s email at 10 p.m., a single line is easier to live with than twelve.
But it’s also how margin disappears without anyone noticing. Bob Burke of Natural Products Consulting put it plainly in a FoodNavigator piece: “Trade spending is not a cost of doing business, it’s a strategic investment.” The same article noted that early-stage brands can spend up to a third of their sales on promotions.
A third. That’s not a rounding error. That’s often the biggest check you write all year, and it’s the one you look at least.
Most promotions don’t pay for themselves
This is the number that stopped me the first time I saw it. Nielsen looked at more than one million UPCs and 39 million promotional events, totaling $555 billion in U.S. retail sales across 150 retail banners, and found that almost three-quarters of promotions don’t break even (FoodNavigator, October 9 2014).
That study is a decade old, and it covered the whole industry, including the biggest companies in the world with the biggest analytics teams. If they were losing money on most of their promotions, a founder running trade off a gut feeling and a spreadsheet tab isn’t doing worse because she’s careless. She’s doing what almost everybody does.
So let’s talk about what the better version looks like, sized for you.
Habit 1: Give every dollar a job before you spend it
On the big-company side, a trade dollar doesn’t move until somebody writes down what it’s supposed to do. Not “support the account.” Something you can check later: get trial in 40 new stores, hold the end cap through the holiday, move the slow flavor before it goes out of date.
At your scale, this can be one sentence per event, in a spreadsheet, before you say yes to the buyer. What is this promo for? What has to happen for it to be worth it?
If you can’t write that sentence, that’s your answer. Not necessarily a no, but not a yes yet either.
Habit 2: Look back after every event, not just at year end
Most founders I meet evaluate a promotion by one question: did we ship more? Shipping more is the easy part. The question that matters is what happened after.
So after each event, ask three things:
- Did it sell through, or did it just ship in? Product sitting in a retailer’s back room isn’t a sale you get to keep.
- What happened the weeks after it ended? If sales dropped below normal, some of that “lift” was just shoppers buying early.
- Who paid for it, all in? The discount, the scan-back, the ad fee, the free product, the extra freight.
You don’t need a trade promotion management system to do this. You need thirty minutes and the willingness to look at an answer you might not like.
Habit 3: Read your deductions like a bank statement
Deductions are the money a retailer or distributor takes out of what they owe you, for promotions, damages, shortages, fees, and sometimes things you never agreed to. They show up on a remittance, often with a code nobody explained to you.
A lot of founders let these slide because chasing them feels small and awkward. But every one you don’t question is trade spend you didn’t plan, didn’t approve, and won’t see on your P&L until the quarter is already gone.
You don’t have to fight all of them. You just have to know what each one is. Match it to an agreement. If you can’t, ask. That one habit alone tends to change how a founder sees her whole trade budget.
Habit 4: Budget trade as a total, by retailer
Here’s a simple, made-up example to show the math.
Say a brand does $500,000 a year in gross sales across three retailers, and between promos, slotting, free fills and deductions, it spends $90,000 on trade. Looked at one event at a time, every individual promo seemed reasonable. Looked at by retailer, one account turns out to be taking $45,000 of that $90,000 while bringing in $150,000 of the sales.
Nothing about any single decision was crazy. The problem only shows up when you add it up by account. That’s the view the big companies plan from: a total trade budget, split by retailer, with every event drawn down against it. When the account’s budget is gone, it’s gone, and the next yes has to come from somewhere else.
At your scale, that’s one tab. Retailer down the side, planned trade, actual trade, and sales next to it. Update it monthly.
What changes when you do this
I want to be careful here, because none of this is about spending less. Some of the best money a founder ever spends is trade money. A well-planned promotion with the right retailer at the right time can earn its keep many times over.
The point is knowing which ones do. The difference between a $100 million budget and a $50,000 one isn’t the discipline. It’s the stakes. A big company can absorb a bad quarter of promotions. You might not be able to.
So borrow the boardroom habit and bring it home: give every dollar a job, check whether it did it, read the deductions, and plan the total by account. Four habits, one spreadsheet, and a lot fewer surprises at the end of the quarter.
Let’s look at yours together
If you read this and thought, “I honestly don’t know which of my promotions made money,” you’re in good company. That’s exactly where most of the founders I work with start, and it’s very fixable.
Book a free Margin Discovery Call and we’ll put your trade spend on the table, side by side with your sales, and find out which dollars are working and which ones aren’t.