Is your business sitting on a trade spend ‘Can of worms’?
Updated: Jan 13, 2022
“We can’t touch our trade terms, that will open up a can of worms!”
Does this sound familiar to you? Now is the time!
Manufacturers can spend upwards of 30% of gross revenue on trade spend, and often these have not been refreshed for over 10 years. Have you experienced the frustration of trying to secure budget for revenue management software whilst the business continues to sign off hundreds of millions in trade spend every year with no questions asked?
Unlocking value through trade spend is the biggest area of opportunity that any FMCG company sits on, and that doesn’t necessarily mean reducing it. Some strategies mean you spend more overall but through highly conditional investment, it drives the right behaviors for your strategy.
Every organisation is facing pricing challenges driven by rising commodity costs, and you will undoubtedly have to deal back some price through terms. Don’t let those terms become drivers of legacy pricing but start to condition customers that a new chapter of trade term management is dawning.
So, here are 3 steps to improving your trade terms management:
Make the entire business accountable
Managing trade spend is no longer the role of a KAM, but rather a business wide objective—sales, finance, marketing, and supply chain are all key stakeholders and participants in effective trade management. Trade investments can be a very powerful strategic lever if compromised of consumer insights from marketing, ROI benchmarks from finance, and cost considerations from supply chain. Collaboration like this can lead to decreased pressure on the supply chain as revenue increases without driving volume, something that is an absolute must-have with the current global commodity cost and shipping challenges.
Build a strong joint business plan
If you are relying on the fact that other organisations are not touching their trade terms, this could be a fatal mistake. Many organisations are opening up the ‘can of worms’with customers and building processes and frameworks that allow both parties to have visibility and openness around implementing new policies. Some organisations are even starting to operate on a Zero-Based-Budgeting model, meaning terms will not roll into the next year for the sake of doing business but must be tracked, refreshed & re-aligned with both the customer and brand owners strategy.
Embed trade spend analytics
Do you have the people, tools and processes in place today to understand how far your trade terms drift or leak each year? Getting the basics right and using a sophisticated TPM tool to track and manage can drive huge bottom line growth over a number of years, but now is the time to start. Advancing your organisations' analytical capability around trade spend can ensure that dollars are working hard for you and reduce time spent trying to prepare data for customer conversations, but use that time to plan scenarios that will benefit both parties.