Let’s talk about trade spend. For many CPG (consumer packaged goods) founders, it is the most frustrating item to carve out a budget for. It’s tough enough to get on the shelf, let alone get customers excited to put in their pantries or fridges. Whether you are a seasoned brand or new to the shelf, it’s the perfect time to reevaluate your annual trade spend. It can be daunting to plan out all the different pieces, we’ll break it down so you can feel confident knowing where your dollars are going.
First of all, what even is trade spend?
If you are reading this you might already know all of this but for those who haven’t had to deal with this yet, we’ve got you covered. Trade spend is all the money CPG brands use to get their product(s) on the shelf and most importantly to get their items to fly off the shelves.
Know the lingo
Many early-stage founders can find themselves in a pickle when it comes to all the lingo associated with making it in retail. It’s easy to not ask the right questions or sell yourself short if you don’t know the terminology needed. Two that are essential to understand are OI and MCB. OI means Off-Invoice, this is an allowance type of trade spend where the manufacturer offers a reduction on the product price at the time of billing meaning the discount comes directly off the invoice. MCB, on the other hand, means Manufacturer Chargeback, MCB includes promotions or even spoilage, you’ll be charged for this after the fact but the retailer will be paying your full rate upfront not a discount like OI. It’s a lot to remember but we have a handy cheat sheet for you to go back to again and again.
Creativity is the name of the game
It’s no secret that the pandemic has brought significant challenges to CPG brands everywhere. Even though certain issues seem to be looking up, there are still a lot of obstacles forcing brands to get creative to get in front of their target customers. With demos still down across the board getting customers excited enough about your product to grab it off the shelf and toss it in the cart. This may mean offering retailer-specific promos, offering digital sampling or coupons for certain retailers. Don’t be afraid to think outside the box-especially when the typical box doesn’t even exist right now.
Talk to people who’ve been there
It may sound obvious but the best advice will always be from people who’ve already been in your shoes. While all brands have different goals, if you are in a new-to-you retailer, finding a few brands that have had success in that retailer can be priceless. We suggest doing your homework and taking them out to lunch (or virtual coffee) and learn what they did to be successful on those shelves. Get as specific as you can when it comes to promotional programs so you can plan accordingly. Groups like Startup CPG, OMGCPG, FoodBevy and FoodBoro are great places to connect with the people behind the brands.
Know your numbers
We know that budgeting for trade spend can feel like picking a number out of a hat sometimes. But, knowing your numbers and budgeting appropriately will help you make the most of your annual budget and make sure your dollars are going to good use. We suggest using the magic formula, set aside 12-18% of your gross sales to put towards trade spend.
One size does not fit all
Let’s face it, the retailer is trying to sell you on promotional programs. It's their job. But, just because they pitch these programs to you doesn’t mean it’s the best fit for your product. You know your product better than anyone, go into those conversations with clarity on your promotional goals, budget and like we said above know the lingo so nothing gets lost in translation.
Trade spend can get framed as a last-ditch money grab from retailers but the truth is, if you are strategic about it, you can set your brand up for retail success, work within a set budget and maintain a positive relationship with your retailers. One of the best ways to get your product on the shelf and into consumers’ hands? Know where your fans shop, WeStock is here to help you capture all that data to use in talks with retailers and to let your super-fans know when you land on their favorite neighborhood-store’s shelves. Learn about getting started here.