Transcript
Speaker: Recurring non-trade deductions aren't just an annoying admin problem. They are a silent margin killer. If you don't know what's causing them, you're probably paying for the same mistake over and over again.
Speaker: Welcome to the CPG Trade Spin Podcast. I'm Kyle Barnholt and today we're breaking down how to identify and fix the root cause of your deductions so you can stop reacting and start driving revenue growth.
Speaker: By the end of this episode, we'll walk away with a step-by-step process to uncover the real reasons behind your deductions and what the best CPG brands are doing to eliminate them at the source.
Speaker: Welcome to the CPG Trade Spend Podcast. I'm Kyle Barnholt, and I've spent years helping brands navigate the messy world of trade spend, deductions, and promotions. This podcast is all about breaking down the complexities of trade spend, uncovering hidden insights, and turning data into profitable decisions.
Speaker: Whether you're a finance pro, sales leader, or just trying to make sense of it all, you're in the right place. Let's dive in.
Speaker: All right, start with the first topic, which is the true cost of ignoring the root cause of your deduction. So I see this all the time where people are tracking the dollars or they're going through their kind of usual, just kind of end of month process and not really understanding what the deduction was for.
Speaker: or the root cause. They just kind of take it at face value. And that's not to say the deduction was wrong. It's to say there may be something behind the deduction that could tell you more about your business or what you could be doing differently to work with your distributor or retailer partners to really maximize everyone's sales and everyone's profits. And so at the end of the day, if you're only tracking the dollar amount of the deductions,
Speaker: and not the cause, you're flying blind and you're just kind of leaving money on the table. You're you're just kind of leaving um the root cause behind and not paying attention to what's driving the cost. And so we want to drill into this a little bit and really kind of set the stage for the next couple conversations. and So one thing that I see, as I mentioned, is people come in it's end of month, they need to get through the deductions and remittances to p apply the cash or do their journal entries. what ends up happening is
Speaker: They're moving quick. They're trying to resolve, you know, what was the deduction for? ah Can I kind of tie it out to the planner that I got from the sales team? Or, you know, can I review this and see that it looks legitimate and, you know, or it looks like, yeah,
Speaker: this seems you know fair enough, therefore let's flip a coin and you know move on. right And then they do that on repeat each week, each month, and really don't step back and understand what was the root cause in this. And what this creates is really a reactive approach It drains your resources and it doesn't stop the issue from happening again.
Speaker: It doesn't get to the why. um It just gets to kind of your end goal, which is move it through, move on and, you know, get to the next project. And I totally get that. Like,
Speaker: as a salesperson in CPG and my background, you know, you want to be out there selling, you want to be in front of the category managers, you've got different presentations you're pulling together.
Speaker: Or as I talk to our accounting folks, you know, it's, Hey, I've got all these other projects for, you know, FP&A for the the company, or I owe this project to our CFO.
Speaker: And at the end of the day, You just end up being reactive. And if we slow down and get the right processes in in place, then we can really get to the why and we can start to address the problems at the root cause. And that's where you start to save a ton of money.
Speaker: And, um you know, one thing I wanted to call out is when you are looking at the root cause, if you're not addressing it, then you're often just leaving thousands or even millions of dollars in lost profit on the table.
Speaker: And so a couple examples that we see are spoils, logistics, fines and fees, and admin fees. So there's many different areas, but like just a couple examples where we see people not really drilling in and understanding what's going on are these.
Speaker: And so if we stop and we just slow down here a little bit and talk about spoils, um one of the issues that we see or a couple examples within spoils are, you know, maybe there's a ah shelf life issue going on behind the scenes with your product.
Speaker: It's not the right shelf life where there's something happening from production to when it gets to shelf that you know we could optimize and maybe find a little issue within the process that could save us from continuing to get reclamation um or spoils at the shelf.
Speaker: Another one is rotation issues. So um maybe you work with a three p l um a warehouse third-party warehouse that... there's some rotational issues or there's something going on within the warehouses that you're shipping to.
Speaker: And we're not looking at kind of the rotation of the product. um Or perhaps you're not in the right stores. So you landed the dream account.
Speaker: You gained 200 stores, but honestly, you should only be in 150. And we've actually seen where people are spoiling more than they sell at some of the stores that they're in. So overall, their business could be in a healthy position with that retailer.
Speaker: But if they came out of 10 of the stores where they shouldn't have been in the first place, they could save a ton of money. And so really understanding some of these root causes can allow you to start to make better choices.
Speaker: for yourself, our business partners, and at the end of the day, the consumer, right? We don't want to have product on the shelf that is about to expire, has expired. And so this really helps you just run a tighter ship and you know show up in market much, much better.
Speaker: Or let's talk about logistics fines and fees. you you know Almost every retailer distributor that I've worked with has an inbound routing guide. And one thing that I see kind of common theme is that the sales team gets you set up and you know we're all excited. We're ready to run and gun, get the promotions going.
Speaker: And somewhere in that setup process, this routing guide gets lost. or maybe It's a little bit longer than someone wanted to read. And now we end up getting deductions.
Speaker: And at the end of the day, like if we slowed down, took a look at the routing guide, understood either how they needed the pallet to be um configured or the packing slip to be placed on the outside of the pallet, we can dramatically reduce our logistics fines and fees. And so without stepping back and understanding the root cause of the problem, we're just getting hit with these deductions. We think it's you know, oh, this is how this goes. This is how the industry works. But no, it actually is designed to where you can pick up these guides. You can understand how this distributor or retailer works to optimize their big machine that they're trying to run. And if you can fit into that
Speaker: machine, you can reduce these fees and you can ensure that you're working well with this partner. You're not getting hit with deductions from that specific type of deduction.
Speaker: And at the end of the day, this is good for everyone. Or I think about admin fees and the way you're running your promotions, the Maybe this event that you ran directly with the retailer, that's going to have a fee with the retailer.
Speaker: um If it's through a distributor, there will be a fee. And there's ways we can optimize how you run your promotions to get... you know, only what's needed from those fees to get them running through the system.
Speaker: Yes, there's a burden that the retailer takes on. Yes, there's a burden that the distributor takes on both time and financially ah to carry that finance kind of through their system.
Speaker: And so how do we optimize those fees and ensure that, you know, we're were just in spending our money in the best way possible? And so that's kind of three areas, right? Spoils, logistics, fines and fees, um admin fees.
Speaker: And we want to really understand those root causes so that we can make sure we're managing them appropriately where needed.
Speaker: And just a quick story, we've worked with a bunch of companies like this, but I have one that really sticks out where they came to me and said, Kyle, we got set up.
Speaker: We really didn't know up from down on kind of what we were getting hit with on the different deductions and fees. And once we really dug in and understood with the help of your system and with the help of the reports um that you guys were providing, we were able to really change behavior within our organization for the better.
Speaker: And not just behavior, but like the way we went to market completely changed. We weren't thinking about all the different steps along the journey from when my product leaves my warehouse to when it gets to the retailer. We just hadn't gotten to the point where we had tighten the bolts. And so, you know, the story here is they were able to save about $100,000 across the board by just stepping back and taking it one by one and understanding the root causes of their logistics, fines and fees, or admin or spoils, or even their promotions and ads and other things they were doing to understand what the root causes were and how they can continue to tighten the bolts.
Speaker: And so I think the key takeaway here is you're not just losing money, you're wasting time if you're just letting it go. So it's almost counterintuitive. You think you're saving time by going fast, but you're losing more money and you're actually wasting time too.
Speaker: So if we slow down, identify these patterns and then start to fix them, then we can kind of cut the issue off at the source.
Speaker: All right, next let's talk about how to uncover the root cause. And this is your step-by-step guide that I've alluded to. right, so just kind of as we think about, let's talk about how you actually find the real root cause behind your recurring deductions.
Speaker: And so there's really five keys to this framework. And I'll go through each one kind of individually, but The five are you want to create a report of deductions by type. Okay, that's going to give you kind of a layout that's going to allow you to really digest all this information.
Speaker: And then you want to build a drill down by retailer and distributor, whether that's direct account or indirect retailer if you're working with a distributor. And then we want to be able to look at the timing. So you want to see this kind of month over month at a minimum so that you can really understand, you know, within a certain timeframe, you know, seasonal, those different things.
Speaker: how does How do my deductions fluctuate? And then we want to be able to tie it back to our internal operations. That's number four. And finally, we need to be able to loop in our cross-functional teams, sales, supply chain, finance, et cetera.
Speaker: So let's take these one by one. Let's go back to the top. and talk about creating a report of deductions by type. So we talked about logistics, fines, and fees. We talked about spoils.
Speaker: um So you want to have this report laid out where you have the category broken down. And you may have high-level categories and then some subcategories, but these categories are going to consist of logistics, fines, and fees, promotions, placement,
Speaker: advertising, shortages, damages, spoils, et cetera. These are things that you would think of that, you know, it's kind of common. It's kind of, um,
Speaker: the basic categories that you'd think of within your deductions or trade spend. And so on this specific step, think it really brings us back to the old terminology of if you can't measure it, you can't improve it.
Speaker: And so this allows you to begin to measure month over month how your performing within these categories. Next, you want to be able to drill down by retailer and distributor. And I i kind of mentioned this a moment ago, but you know what issues are recurring with specific patterns?
Speaker: And we want to be able to see this with either our direct retailers or direct distributors, But we also, underneath our distributors, want to understand that for our indirect accounts.
Speaker: So if you're supplied through a distributor and you've got Whole Foods or Sprouts or Publix that they're servicing on your behalf, we want to be able to drill down underneath and really see it at that level. Third, we want to be able to look at the different timing. so I like to set up my report month over month so that we can start to really see the ebbs and flows of the business.
Speaker: You know, if you've ever worked on a seasonal business like soup and broth or anything along those lines, you know there's going to be spike in activity from promotions and shipments and all that stuff just to service that spike in sales.
Speaker: Same can be true on your deductions. you're going to see different timing, whether it's new item launches, perhaps you had a price change, maybe there's some seasonal resets or ah different promotions you're running or just big shipment timeframes.
Speaker: This timeframe, this timing is going to allow you to be able to understand where your bottlenecks are and where your biggest costs are coming. And again, back to the root cause, that's going to allow you to drill in.
Speaker: And then speaking of, number four is tying it back to our internal operations. This kind of comes to both promotions, but also logistics. So we talked about working with a distributor and retailer and how they will tell you how they want to receive your product. If we're not bringing in and thinking about our internal operations, then we're really missing a big part of why these deductions could be happening.
Speaker: So as an example, was the order delivered on time and in full? Because if you get a shortage, that's going to usually be the cause of getting that deduction was, was it in full and was it on time? Did we do a price change?
Speaker: Did we have a promotion? One thing I've seen a lot of, and I like to think of it as like a clean house policy is we have all these kind of off invoices with distributors or retailers, whether it's an EDLP or you know perhaps it's an allowance that we provide spoils or other types of oi allowances as a percentage. And i see people not including those on their invoices when they send them to the distributor.
Speaker: and or retailer, and then they're just getting hit with deduction after deduction after deduction. And what that does is it creates noise in the system. So they're just getting paper cuts left and right on these.
Speaker: And really all it takes is a couple tweaks to how we're invoicing and those deductions disappear. And now it just calms down and we can see clearly what the deductions that are coming through are for.
Speaker: And again, this comes back to the root cause. So having it set up this way allows us to be able to drill into those details that allow us to better run the operations of the business.
Speaker: All right. And then last but not least, step number five in the process is looping in our cross-functional team. So, you know, we got to think about this, I think, from the root as as we're talking about root causes. So who's responsible for managing those deductions as they come through?
Speaker: Let's say it's on the finance team. And they really need the cross-functional team to be engaged and supportive of what they're trying to do.
Speaker: And if they're not, then we're leaving money on the table, right? So as an example, that finance person has a question related to a promotion, sales team needs to be available to support and help answer questions. Same with the supply chain team or your customer service team, you know, whoever.
Speaker: So it's crucial that we get a cross-functional team brought into the mix. And i like to do ah once a month, every two weeks, if you're a big enough organization and it's important enough for you, once a week and really run through with the cross-functional team, this report we've been talking about, and then drill into the root causes with the engagement from that cross-functional team, whether it's supply chain or finance or sales.
Speaker: So that is the five steps that it's five step framework that'll help you really uncover the root cause of your deductions.
Speaker: With TrueUp, you can filter deductions by root cause, by retailer, by category. So you're not just solving the problem, you're preventing it from happening the next time.
Speaker: And um we actually have a deduction mastery framework where I talk a lot about this five steps that we just walked through. So if you haven't had a chance, we'll link it below and you can really...
Speaker: ah maybe drill in if you have an appetite for understanding more about how we can implement this deduction mastery framework or this five-step framework into your process.
Speaker: So key takeaway here is deductions aren't just a trade spend or finance issue. They are a window into the operational misalignment of an organization or of a partner with our distributors or retailers.
Speaker: And it's crucial that we manage this with some level of process and an SOP or a standard operating procedure so that you can get to the root cause and really runup tighter ship, manage our business in a way that's going to help us drive growth and profitability within the business.
Speaker: Next, let's talk about the 10 common root causes of a deduction and how to fix them. So first of all, you'd be surprised how often the same issues come up across brands.
Speaker: And, you know, it's kind of the same thing over and over again. I would like to give you guys kind of the 10 most common areas where deductions are coming through and what you can do about them.
Speaker: So first of all, promotions. This will be your single largest category for almost every brand for good reason, right? You're getting deductions for promotions that are running at the shelf.
Speaker: to drive revenue, drive ah more products into the consumer's hands, more trial, more repeat, right? Promotions are a good thing. We want to see deductions for promotions.
Speaker: It means that we are out selling our products, getting it into the consumer's hands. And so I think the key here is that we need to share the promotional planner.
Speaker: So for the salesperson, it's crucial that you have your promotional planner in a pretty clean format. I know things change, you have to negotiate, but we got to start somewhere.
Speaker: So we got to have a promotional planner that we can share with the team. I like to put it in a share drive where anyone can access it, but specifically the person who will be looking at the deductions.
Speaker: And this can allow them to answer questions about the deductions as they come through. So what retailer, how much of a discount did we give? When was the promotion?
Speaker: What items, et cetera, right? i hear a lot. I got to just, I'm getting so many questions. How do I reduce the amount of questions? Then I could sell more product.
Speaker: This is your answer. Get that promotional planner into a share drive for others to be able to access and be able to answer those questions. Next up, you know we've got earlier late fees. So when you're doing a shipment, when you have a shipment go in to our distributor retailer partners, we're getting hit with late fees.
Speaker: I'll come back to that in a minute. Shortages is a big common deduction that we see. Warehouse spoils, store spoils, audits, so post audits.
Speaker: A lot of these are actually off invoice allowances that never got onto the invoice. So I'll come back and talk about that. Show deals. This is a common one.
Speaker: We're out slinging product at trade show. and we're getting deductions for them after the fact. Duplicate deductions, I'll come back to that. Wrong brand deductions. Unfortunately, it does happen. It's very rare, but it'll happen and we want to be on top of it.
Speaker: And then placement fees. So I'll drill into just a handful of these to give us some examples. But those are the 10 most common types.
Speaker: And here are a couple fixes. So early or late fees. We see this as kind of a common repetitive thing. deduction. And i think the key here is coming back to that form that you can get from your distributor or retailer that helps you understand how to best work with them, how we need to build our pallets, wrap them, put the placard on the outside.
Speaker: you know These are critical steps that can be overlooked. And if we can just kind of slow down Believe it or not, your early late fees can come from how you are putting your pallets together.
Speaker: Also, and we have an interesting story here where, and I see this a lot, the company didn't know they can actually, they know that it, so, how does How does this all work?
Speaker: We've got a purchase order that comes through from the distributor or retailer. You accept that purchase order and say, yep, we can ship that product in that timeframe. And now you fulfill that order, you get it on the road.
Speaker: But what can happen is before it goes out, we know we're gonna be a little bit late on that, maybe three, four days. Now you're outside the window where you can start to get late fees or if you ship too early, you can get an early fee.
Speaker: And so the key here is we had a company who We help them find out you can actually inform the distributor or the retailer, but they have a very specific way of communicating it ah through a portal they use.
Speaker: and if they And just by starting to communicate through that portal, a late delivery or early delivery. Not that the distributor wants to see this a lot, but by communicating it, they can move around their receiving and take different orders that they might be pushing off.
Speaker: And um that brand was able to save tens of thousands of dollars a year in late fees just by making this adjustment. So again, this is one area where if you're creating the report and you have your late fees and you're tracking those, you can see whether or not this is an issue. And if it is, there's a root cause and we can address it.
Speaker: And now we can start to really get after it with our partners to make sure we're following all the right procedures to reduce our cost. Shortages. So so These come through quite a bit and really here, of course, we need to always look internal and understand what are we doing? What can we do different?
Speaker: um I like to think about how's our forecast look? So what's our forecast versus what the orders are? you know Are the orders coming about what we expected? And then is our forecast aligning with that?
Speaker: Of course, that's going to drive a lot of what happens on the shortage side. um But there's other things we can do here, perhaps, and this does happen.
Speaker: Unfortunately, sometimes delivery gets there and to the distributor retailer, and it wasn't packaged correctly, right? The pallet didn't have the placard on it.
Speaker: And now that pallet goes somewhere else in the warehouse. And um when they go to do their reconciliation, we get a shortage deduction. So first of all, we could have nipped it in the bud if we had followed kind of the expectation of the distributor or retailer by just you know following all their guidelines and procedures on shipments.
Speaker: Secondly, ah now we're in a process of validating whether or not that was a legitimate deduction. And we can do this by you know keeping a bill of lading from our shipping partner and um being able to compare to that shortage fee as it comes through.
Speaker: So that's shortages. Warehouse spoils. So here we wanna understand, do we have the right kind of from production to shelf life? Do we have the right shelf life set up with the distributor and understanding, you know hey, when we get an order for a warehouse, this is great, but at the end of the day, you have to be your biggest advocate. If that purchase order looks bigger than what you'd expect for a warehouse, we wanna make sure we understand why that's happening.
Speaker: And so um it's say it takes all of us in the CPG community to really manage ah the business and understand the why behind um you know these shipments and orders and making sure they have a home.
Speaker: And so lot we can do there on warehouse spoils, store spoils I talked about a little bit earlier. Right. So just understanding, are we in the right stores?
Speaker: Is there anything we can do to kind of nip it in the bud if we're getting a lot of those deduction types? I also talked about audits, but I keep coming back to, you know, you're going to get post audits.
Speaker: And so how can we minimize these audits? In a lot of ways, it comes back to, are we including the off-invoice allowance on our ah invoices to the distributor retailer? Sometimes there's a disconnect.
Speaker: We talked about for promotions, sharing our promotional planner. Same is true for off-invoice allowances. Did we communicate with our customer service team that we need to be, or our accounting team, that we need to include an off-invoice during a certain timeframe?
Speaker: That's going to be one of your biggest reasons for an audit. So making sure that everyone's been in the loop on what's being given on promotions can really reduce our audits.
Speaker: Show deals. So we're out, you know, we get very excited when we're at shows, me included as a salesperson of CPG products here at the show. Everyone's excited. A retailer comes by.
Speaker: you know They're ready to write a truckload order or 10 cases or whatever it may be. And we start negotiating as we do at shows. And you know fast forward couple weeks later, that deduction comes through and the person who's reviewing your deductions doesn't know you gave that promotion. So the real kind of critical key here is how can you keep track of those promotions or discounts you gave at the show and make sure you communicate that and share that over to the person reviewing deductions. It's going to reduce questions. It's going to help them validate and move on more quickly.
Speaker: One little hack here is a lot of times you can actually get a recap of the events that were ran or the promotions that were negotiated after the event and now we share that over to the team, maybe put it in that share folder where you're housing your promotional planner.
Speaker: This can reduce the questions and confusion about those show deals. Duplicate deductions. I'm going to get a little bit into like, hey, stuff happens and it's going to be critical that we're just keeping track. And that's where the five step process we just talked about, that framework will help you do this. So We do see duplicate deductions.
Speaker: If you can keep track of these, of each of your deductions, usually you'll be able to spot themes. You know, it was the same dollar amount, same account, same retailer or distributor, same timeframe for same warehouse or whatever the case may be.
Speaker: and you can spot them more quickly and make your decisions and take action. Next is wrong brand. Similar thing. Stuff happens. You know, unfortunately, there are human error and it's not intentional, but we want to make sure we catch that because then it can go back and get over to the right brand who ran said promotion.
Speaker: And so this is where just having reporting and a process in place is going to be crucial to your success as a CPG brand. I talked about promotions already.
Speaker: And then finally is placement fees. So, you know, making sure that you're forecasting for, hey, what's possible? We're going out to these retailers,
Speaker: And pitching our product this year, you know we've got 50% chance or 90% chance we think of landing these accounts with these items, create a forecast, put that forecast in the promotional share drive, and then come back and and update it.
Speaker: Or at a minimum, when you get approvals for each retailer, make sure that's getting into that share folder or over to the person that's managing the deductions because this will be one of the top 10 reasons that you get a deduction and it'll just make things seamless if we can share that information across that organization.
Speaker: So hopefully this helps you think about, you know, how do i what are kind of the 10 most common deductions? How do i fix them at the root cause and just really start that dialogue for yourself or for your team internally?
Speaker: I'm always happy to, you know, chat and share more thoughts and ideas, ah but hopefully that gets you started. And the best brands don't just react to deductions.
Speaker: They build systems and SOPs that prevent them from happening, or at least the ones they don't want to get in the first place. And they do that by reviewing and constantly improving and understanding the root cause of their deductions.
Speaker: Okay, well, thanks for tuning in. As a recap, deductions aren't random. They usually have a pattern. I like to say that deductions tell a story. I could come in create this reporting for you, see...
Speaker: And then see the story that your deductions tell, where you're potentially losing money, where you guys are optimized on your business, um how you're running your operations.
Speaker: Are you guys following the rules and regulations that your partners have? put out there to reduce the deductions that ah you can get. So understanding these patterns and tracking them is going to be crucial to your success as a CPG brand. Ignoring the root cause means you're going to keep bleeding margins. So It's easy to want to just kind of sweep it under the rug, but the more you do that, the more likely you are to fail as a company and as a business.
Speaker: Start grouping and tracking your deductions by category, by retailer, by deduction type, and then by item if possible. From there, we need to make sure we're looping in the team and have that cross-functional process in place so that you can really stay on top of and measure these deductions and understand what's working trade and what's non-working trade and how do I influence the stuff that's going to help me drive more sales in my business.
Speaker: Last but not least, fixing the source is going to mean know fewer issues, less stress, and more margin. So finally, recurring deductions don't have to be part of doing business.
Speaker: With the right process, you can fix it at the root and protect your bottom line. Hey, so best of luck as you go out and implement this in your business.
Speaker: We're always here to support. And if you're ready to stop chasing deductions and start solving them, get in touch with us at TrueUp. We'd love to help or support in any way we can.
Speaker: We are actually happy to do a data demo with you, to look at your data, review it, talk through the opportunities. So reach out anytime. We're happy to help. Best of luck.
Speaker: Let's go sell some more product.
Speaker: Thanks for tuning in to the CPG Trade Spin podcast. If you found today's episode helpful, be sure to subscribe so you never miss a conversation. And let's keep the conversation going. Follow us on Instagram, Facebook, TikTok, and LinkedIn at CPG Trade Spin podcast for more insights, updates, and behind the scenes content.
Speaker: See you next time.
