Discover the secrets of trade promotion management with our comprehensive guide, covering all aspects to increase sales and profitability for your...
For CPG companies and manufacturers, running successful trade promotion events is one key to driving your top line. But without meaningful post-event evaluation, manufacturers tend to copy over their old plans and repeat the same events, whether that plan is driving efficient incremental sales or not, which is definitely not good for the bottom line.
Before running a new promotion, it’s key to narrow in on what you’re trying to achieve and why. From boosting sales for a specific product to improving brand visibility or loyalty, knowing your KPIs will ensure you stay on track.
There are multiple factors that can affect the success of your promotional events and it might be difficult to narrow down what exactly you should focus on. We’ve gathered a list of 10 essential KPIs to help you improve your trade performance. But first, it’s important to do a check on the foundational data feeding these KPIs:
Accurate base and uplift models
When using accurate base and uplift factors, you can:
- Get an accurate projection of planned sales data
- Generate a holistic forecast – all consumption included, whether promotions exist or not
- Manipulate promotional plans and get an accurate impact on total planned sales
- Calculate ROI from trade events - ROI is a measure generally based on incremental sales. Accurate base and uplift are vital to accurate ROI.
Base sales are what you expect to sell if there is no trade promotion happening in-store. Uplift factors predict the incremental volume from planned promotions. The goal of trade promotions is to generate a high ratio of incremental sales relative to trade spend.
Base Sales= What you would expect to see in the absence of trade promotions
Incremental= Additional sales (over base) generated by in-store trade promotions
Read our blog on Accurate Data Modeling: The Secret to an Effective Trade Promotion Management and Optimization Strategy to understand the options for generating accurate baselines.
Trade promotion key performance indicators (KPIs) for meaningful post-event evaluation
Understanding post-event KPIs is the first step to improving trade performance. Here is a list of common ROI indicators and how to interpret and apply them.
Lift is a simple measurement of effectiveness that can be easily compared across events. Lift can be expressed in either dollars or units.
Incremental / Base sales (expressed as a percent)
With little to no sales lift, your team risks wasting a significant amount of time and money.
#2: Incremental sales
Incremental sales volume measures the increase in sales during a promotion. When evaluating promotions internally, it is helpful to express incremental dollars in terms of manufacturer revenue dollars as opposed to retail dollars. The goal is to maximize incremental sales from your trade spend while minimizing the ratio spent on base sales, which are sales you would have achieved without the trade activity.
#3: Trade rate percentage
It measures the efficiency and effectiveness of trade spend, encompassing all promotional activities in collaboration with retailers, like discounts, rebates, shelf promotions, and in-store displays. Typically used on longer time periods such as annual or quarterly.
Trade rate percentage = Gross sales / Trade spend × 100%
#4: Event spend
This KPI looks at the total trade spending on an individual event as a portion of the total revenue generated. This measure can serve as a helpful guardrail and provide a valuable KPI for analyzing events where the base versus incremental split is not available, such as in non-POS accounts. You can calculate event spend by dividing the following:
Revenue / Trade (expressed as a percent)
#5: Cost per incremental dollar (CID)
CID is a simple yet powerful measurement that holds your salespeople accountable for what is in their control, how much they spend, and how much incremental sales their spend generates.
Trade spend / Incremental revenue dollars
This KPI can also be calculated on a unit or case basis.
ROI takes post-evaluation one step further to help you understand the return on investment from a profit standpoint, and gives credit for generating INCREMENTAL sales. When evaluating the ROI of trade events, note that this approach inherently encourages increased trade spend on items with higher profit margins. This may not always align with the company's product goals, as it focuses primarily on profit.
ROI = PROFIT on incremental revenue / Trade spend
#7: Dollar profit and spend per incremental case
Dollar profit and spend per incremental case measures the profitability of each additional unit (or case) sold as a result of a specific promotional activity. It takes into consideration the costs and revenue associated with selling that additional unit.
#8: Market share gains
This measures increase in a brand or product's share of sales within a specific market or category over a defined period, often compared to competitors. When utilized in the context of trade promotions it gives you an understanding of how much the promotion grew the product line or brand vs canniablizing other parts of your business.
#9: New to our brand consumers
Indicates the number of consumers who purchased a brand's product for the first time during a given period. In the context of trade promotions, generating trial is a strong indicator and will show in increased sales after the promotion.
#10: Net price
The selling price of a product after all trade promotions, discounts, and allowances have been subtracted. It provides a clearer picture of the actual revenue realized from a product sale after accounting for promotional costs.
How post-event KPIs improve trade performance
With the proper post-event trade promotion spending analytics, you can gain a 5-10% increase in efficiency across your promotions. Evaluating each spend is an important discipline that should be employed throughout the process.
Use predictive analytics to evaluate planned ROI and compare to actuals after these data points are available. Hold the entire team accountable for ROI improvements and allow the team a little room to try different promotional strategies and tactics and see how they perform.
Introducing CPGvision: the best-in-class fully connected and integrated RGM solution suite for the CPG industry
Meet CPGvision: the best-in-class fully connected and integrated RGM solution suite for the CPG industry, built on the Salesforce platform. With the most advanced functionality in the industry, CPGvision equips you with real-life problem-solving applications for TPM, TPO, RGM, and beyond.
Your success is our success - CPGvision proudly provides a dedicated customer service team staffed with CPG industry professionals. Regardless of where you are in your RGM journey, you’ll be fully equipped with the solutions you need for profitable revenue growth. Make sure to check our free resources for the CPG industry to learn how you can nimbly react to today’s ever-changing economic environment.
Contact one of our CPG experts to start revolutionizing your trade promotions!