We have all heard about this primate of epic proportions. OK now all sales executives look at him and say hello! His name is “TS” - trade spending and he has been keeping many of you awake at night and chasing the sheep away as well.
“TS” is the second line on your P & L statement just below cost of goods and it is the one measure on this financial statement whose savings and improvements go directly to bottom line profit. But for many CPG companies today it remains the number one nemesis. I can bet it’s yours as well.
After leaps in technology, advanced data research and countless white papers; why does trade spending remain a problem for so many companies? At issue are corporate cultures and antiquated systems and processes that perpetuate bad practices instead of creating avenues of improvement.
In the current structure of many sales organizations there is little, if any, incentive for the field sales managers to improve on their trade spending return. More often, there are directives in place that force sales managers to spend all the trade funds they have because the company regularly reduces trade budgets the next year. If they can show they required the funds to make their sales budget, they are more likely to get the same amount the next year.
I spent 14 years as a buyer for the retailer in Chicago and I can tell you stories of trade spending waste that continues today. Every year heading into the fiscal year ends of CPG companies, retailers would see a flood of ad money and slotting fees in a mad dash to spend it all before the fiscal year end. It was “money for nothing” and we were more than willing to buttress our bottom lines with your foolishness. And yes, it still happens today.
But what about incenting sales managers with trade spending improvements by rewarding them with a percentage of the savings? How fast do you think a sales manager would find a way to pay less in slotting or get an ad fee reduced if they knew a portion of that would come to them as a bonus? World record speed!
How do you make it fair and equitable across a large organization? By putting the savings in a pool and spreading the savings across the organization but recognizing the individuals for the significant impact they had on the company. If your region shows no improvements during the period, you are ineligible for the pool. In this process you will benefit from the creation of a more productive sales team, better negotiators and give them a sense of ownership in the company.
Right now sales leaders have no idea what can be done with their trade budgets, because they have never tried. Once you see the improvements that can be made you will uncover the real best practices you have been searching for. What would a 5% or 10% improvement be worth to you this year? Would it be worth giving half to the sales team?
In subsequent years you can leave the incentive in place. The improvements may not be as large as year one, but the best practices will be in place and you will maintain the level of performance within your team. But best of all, you will benefit from the improvements forever.
In today’s economy gives leaders ample incentive to think outside the box to find improvements in any facet of the business the can. Why not start with the biggest of all?
I find it hard to understand why trade spending has remained such an issue. Maybe too many of you have become friends with “TS”.
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