271. WHY TRADE SPEND FAILS (AND HOW TO FIX IT)

0:00Episode 271, Why Trade Spend Fails and How To Fix It. New Items Essential Series The uncomfortable truth about trade spend. If you're an emerging CPG brand, trade spend probably feels like the most confusing, frustrating line item in your P &L. It feels like a necessary evil, a black box you never fully control, a consistent source of deductions, a major cash flow risk, and something you're always reacting to and never had. And if you're honest, you're probably asking yourself questions like, why do promotions cost so much? Why are my lifts smaller than expected? Why do deductions keep showing up months later?

0:39Why does it feel like I'm paying retailers and distributors and still losing money? You might even be wondering if trade spend is worth it at all. Here's the truth most people in this industry won't say out loud. Trade spend doesn't fail because promotions are bad. Trade spend fails because the strategies are missing. And here's the part that makes founders uncomfortable, but also explains a lot. Many brands are spending more in promotions than they are actually earning. You're literally paying for the privilege of losing money. That's not because you're careless. It's because nobody ever taught you how the system actually works.

1:15Today I'm going to change that. In this episode, we're going to walk you through why trade spending fails so consistently. The five foundational breakdowns I see across almost every brand. How deductions quietly destroy a runway. How forecasting mistakes distort performance. and how to turn trade spend into a disciplined strategic growth lever. But before we get into the framework, I want to tell you more about the moment that permanently changed how I think about trade spend and why this topic became one of the core pillars of the new item essential system. The story, the moment that everything clicked.

1:49Years ago, while working for Unilever, I was deep in the woods chasing deductions. At the time, I thought I was doing the right thing. To me, deductions were a game. The more I recovered, the more money I could put back into promotions, the more promotions I could run, the more sales I could drive. That logic probably sounds familiar. Then one day, my boss pulled me aside and said something I wasn't expecting. We pay you to sell, not to chase deductions. I pushed back. I explained how much money we were recovering. He stopped me again and said, those losses are already factored in. They're part of the cost of doing business.

2:25That was my wake-up call. Because in that moment, I realized something important. Big brands understand trade spend as a system, not as a series of events. Around the same time, retailers began expanding trade fees aggressively. Paid ad placement, display fees, slotting, administrative charges, bill back, promotional programs layered on top of promotions. From my perspective, that's when many brands became an ATM machine for those retailers. And here's the key insights. Big brands could absorb it. Small brands couldn't. That's when I decided to learn everything I could about trade marketing. Not just promotions, but incentives, economics, and behavior.

3:06Because emerging brands don't have the luxury of ignorance here. Trade spend can quietly determine how long your brand survives. I'll let you in in a dirty little secret. Retailers don't care about your sales list. They're going to make money from your promotion, even if it's a colossal failure. Let that sink in for a while. The game is rigged and it's rigged against you. Retails are to profit no matter how your promotion performs. More about that in future episodes. The$16 ,000 sale and the$12.31 check. If you listen to podcast episode 197, you'll remember this story, but it's worth repeating because it's far more common than most founders realize.

3:46A founder landed what looked like a great promotion. Major retailer, strong timing, solid expectations. They shipped$16 ,000 worth of product. They waited for the lift. They waited for the check. And when the check finally arrived, it was for$12.31. And that was after free fills, off-invoice discounts, billbacks, admin fees, slotting, spoilage, and underauthorized deductions. Their margin, and then some was gone. The founder didn't have a sales problem, a category problem, or even a velocity problem. they had a trade spend problem. And sadly, that story isn't rare. It's normal for brands that never built a trade strategy.

4:26This episode exists so that you never become the$12.31 brand. Why trade spend matters. Trade marketing is typically the largest item on your P &L and includes everything required to get your brand into the hands of shoppers. Everything. What trade spend really is and isn't. Let's clear up one of the biggest misconceptions in CPG. Trade spend isn't advertising. Trade spend is retail negotiation. It touches pricing, promotions, deductions, margin, merchandising, forecasting, broker accountability, contribution, and ultimately a runway. For most brands, trade spend represents about 25 % of your gross sales.

5:06And in many cases, especially natural, 70 % or more is ineffective or wasted. Not because founders are reckless, but because the system is opaque. Small improvements here compound faster than almost anything else in your business. That could be additional runway to grow and thrive. Mistakes here get expensive quickly. So let's walk through the five reasons trade spend fails and how to fix each one. Strategy number one, trade spend fails because brands don't know their true cost. Promotions don't fail because of velocity. They fail because of strategy. If you can't answer these three questions, your promotions are failing by default.

5:46What is it cost to land one case on shelf by SKU? What is your true margin after trade spend by item? How much lift do you need to break even by promotion? Most founders price based on competitive pricing, retailer pressure, broker recommendations, industry norms, and guesswork. Not real cost architecture. Few brands understand SKU level economics deeply enough to plan promotions confidently. The fix? You need a fully loaded cost model by SKU. That includes true cost of goods sold, that's ingredient packaging yield differences by item. Freight cost, especially for refrigerated and frozen items.

6:30Distributor margins, retailer margins, slotting fees, and promotion cost. Deductions. Where did the bulk of your deductions come from? Only then can you build a profitable pricing and trade plan. Action steps for this week. Model three scenarios per SKU. Number one, baseline, no promotion. You measure effectiveness against this. You're going to use this as the benchmark for everything in the future. Two, temporary price reduction off shelf. Three, feature and display. Do this by SKU. Costs differ by item. calculate the forecasted sales by item given each scenario. Granularity changes everything.

7:11This will help you choose the right items to promote. There is a free trade promotion calculator on my website, complete with instructions. Input each of the different scenarios, and then compare that to the actuals. This is the only way you'll learn what promotion levers drive sales for your brand. Promotion performance will differ by retailer. Strategy number two. Trade spend fails because promotion agreements are incomplete. This is one of the most preventable and expensive mistakes I see. Fake, sloppy, or incomplete agreements equal deductions you can't dispute. Missing skew level details, start and end dates, frequency, case costs, display expectations, backstock requirements, discount levels per item, merchant approved documentation.

7:57These all lead to unforeseen costs, incorrect billbacks, promotional leakage, cash flow disruption, and a distorted understanding of profitability. This leads to cash flow chaos. Some retailers outsource deductions to firms, pay during what they deduct. Yes, firms actually earn a commission on what they deduct. Incentives matter. The fix slow down and treat every promotion agreement like a binding contract because it is. Action steps for this week. Number one, add skew specific detail to every deal. Number two, include promotional goals and merchandising expectations. Number three, recommend backstop levels per store.

8:39Out of stocks are the quickest way to frustrate customers and embarrass your retail partner. Avoid them at all costs. Number four, store agreements digitally by retailer and by date. I've seen brands cut deductions dramatically by doing just this. I've also used this strategy to negotiate lower fees with retailers. More on that in future episodes. Strategy number three. Trade spend fails because brands promote the wrong SKUs. Most brands promote because the retailer expects you to run promotions. That should never be taken as a mandate. This is your brand. You should only promote what, when, and how it best supports your growth plans.

9:17Most founders lack a trade marketing strategy, so they promote just about everything with little thought or consideration at the possible impact of the promotion. Now that you understand the cost of promoting your items, you can begin to develop a promotion strategy. What items make the most sense to promote? A couple things to consider are the items availability. Never promote something that you're having a difficult time keeping the shelves fold with. You should also never promote large count packs or trial sizes. They should have a different strategy. The only reason you promote an item is to drive trial and build awareness.

9:53That's it, period. Few if any brands are that disciplined in their promotion strategy. Here's why this matters. If you promoted your five count chocolate bar and I had planned to purchase it, then those trade dollars are not being used effectively. While I love the idea that I'd be saving money, you already have me as a customer. I have creative, more effective ways to reward existing customers that I'll share in future episodes. One of my favorite promotion horror stories is the mainstream cereal aisle. Manufacturers jack the prices up really high, so shoppers would only shop the aisle when they offer deep discounts.

10:28Sales were next to nothing in the absence of any promotion. They took away any incentive for customers to buy their product when the items are not on sale. Your promotion strategy should be driven by what makes the most sense to your brand. This includes how your items interact with other items. Your SKU drives profitable category growth and long-term customer value. The final mistake in promoting is you choose the slowest SKU, the lowest margin SKU, your awareness SKU, your fringe SKU, your innovation SKU. This dilutes everything. The fix is to promote SKUs that drive repeat purchase, build brand awareness, increase basket size, trade shoppers up, reflect your core attributes, and drive contribution.

11:12Grow incremental category dollars and have the strongest gross margin. Promoting the wrong skew dilutes everything. Action steps to do this week. Identify number one, your highest basket lift skew. Number two, your highest contribution skew. Number three, your most repeat driven skew. Build your next promotion calendar around these three. Build a promotion strategy for every item you sell. Sometimes the best strategy is not to promote every SKU. Strategy number four, trade spend fails because brands don't measure post-promotion retention. Retailers, brokers, and even most consultants evaluate promotions based on lift, units sold, displays executed, and redemption.

11:54But the only metric that matters for you as a founder is what percentage of your shoppers buy again after the promotion. If you lose them immediately, your trade spend didn't work. Your ROI is negative. You bought velocity, not loyalty. So why does this happen? Brands rarely measure new to brand versus returning shoppers. Evaluating promotional stickiness. Compare baseline before and after promotions. Track churn or repeat cycles. Or understand why promotions fail. The fix? Measure retention, like a subscription company. Use the free trade promotion tool on my website. Run different scenarios and then email them to you.

12:35Then after the promotion input the actuals and email those to you. Now you have something to study and compare the next time. This is the only way you're going to get better at running promotions with trial and error. A promotion that works at one retailer may not work at another retailer. Use this tool to take the guesswork out of your promotion strategy. Once you identify the specific levers that drive sales after promotion is over you will then have roadmap for future promotions. Action steps to do this week. Number one, look at your four week, eight week, and 12 week post promotion baseline.

13:09Number two, calculate how many buyers stayed with their brand. Number three, compare your promotions, which kept shoppers and which didn't. Number four, stop running promotions with low retention. Retention is the difference between profit and loss. Kill promotions that don't retain. When you find something that works, rinse and repeat. If you're wondering how to identify those customers that stuck with you and those customers that left, the best way to do this is with incentives that drive customers to your website. Once you own that customer, once you develop a relationship with that customer, you can actually ask them.

13:46Strategy number five, trade spend fails because brands don't forecast properly. Out-of-stocks ruin great promotions. Here's how to prevent them. This goes back to providing a recommended quantity for each store promoting. That drives your inventory predictions. Poor forecasting costs out of stocks, excessive inventory, wasted cash, retailer frustration, misleading performance data, and worst of all, their promotional performance appears poor, even when demand is strong. The founder mistake is guessing, relying on averages, historical lists, distributor input, or gut instinct. The fix is to build a simple, repeatable forecasting model that includes distribution, seasonality, lift scenarios, pricing impact, competitor promotions, merchandising execution, store level variance, and back stock requirements.

14:37Action steps to do this week. Build a forecast calculator for your top three promotions. Number two, include minimum expected and strict scenarios. Number three, share the forecast with your broker and your distributor. Forecasting is leadership and retail is rewarded. Recap the five reasons trade spend fails. Number one, you don't know your true cost, so you can't price correctly. Number two, your promotion agreements are incomplete, causing deductions. Number three, you promote the wrong SKUs, lowering your ROI. Number four, you don't measure retention, confusing lift with loyalty. Number five, you don't forecast, causing out of stocks and wasted spend.

15:21When you fix these, your trade spend goes from a cash drain, a source of anxiety, a confusing variable cost, a runaway budget, to a predictable ROI engine, a competitive advantage, a reason retailers trust you, a strategy that extends your runway. This is how small brands beat big brands, by being more disciplined, more strategic, and more consistent. Promotion shouldn't drain your business. They should grow it profitably and sustainably. This was podcast episode 271 in the New Item Essentials series. Next, we'll dig into operational excellence, KPIs, scorecards, and how to make trade spend work for you at scale.

16:02Download the New Item Essential guide in the show notes. The trade spend visuals map directly to today's episode. And as always, subscribe and follow the show. Visit RetailSolve.com for a full list of all the podcast episodes plus brand building resources. Connect with me on LinkedIn. And if your trade spin feels like it's controlling your business instead of supporting it, share this episode with the founder who needs to hear it. Send me your biggest trade marketing question for future episodes. Promotions shouldn't drain your business. They should grow it profitably and sustainably. Now you have the roadmap.

16:38You don't need more promotions. You need better strategy. I'm Dan Lohman, and this is a Bulletproof Your CBG Brand podcast. Want a competitive edge? The recipe for success. Here's this week's free downloadable guide. New product innovation is the lifeblood of every brand. New products fuel sustainable growth, attract new shoppers, and increase brand awareness. Learn the crucial steps to get your product on more retailer shelves and in the hands of more shoppers. Maximizing your trade marketing can pour rocket fuel on your lunch. Thanks for joining us today. Please reach out and share your most pressing questions and I'll do my best to get you the answers that you need on future episodes, including expert advice from CEOs and industry thought leaders.

17:17Comment, leave your questions, and get this week's free downloadable guide and the show notes at RetailSolve.com slash session 271.