How to take charge of chargebacks

Sales teams are typically focused on one goal: driving top line growth. But in the retail world, they’re also responsible for managing costs. So it’s important for CPG brands to track retailer chargebacks: deductions that retailers or distributors take from invoices to pay for trade spend and other fees. But getting a clear picture of chargebacks isn’t easy, with both distributors and retailers offering a host of trade spend opportunities ranging from new item launches to in-store demos to temporary price reductions. What’s more, chargeback reports come in the form of PDF statements with hard-to-decipher line items -- and often suppliers don’t even know what promotions they’ve paid for until they’ve already paid for them. Here are some best practices to get control of chargebacks and make trade spend work for you.

Ask the hard questions

As an emerging brand, you’re encouraged to do all kinds of promotions to get your products flying off the retail shelves. But how do you know if trade spend is actually driving profitable growth? Zest Tea CEO James Fayal put it well: “What is the long-term effect coming out of your promotions? You need data to make those decisions -- to figure out if you’re attracting the right type of customers who will actually stick around.” 

So, the first step is to ask hard questions about your past promotions and dig into the data for answers. Did they drive enough sales to justify the spend? For how long? Crisp’s dashboards track vendor chargebacks and sales with up to two years of backfill data to help you understand trade spend performance and sales lift. An important metric to consider is ‘chargebacks as a percentage of overall sales’, which helps you evaluate the effectiveness and overall profitability of your promotions.

Find your success stories

The biggest mistake suppliers make with trade spend is jumping to conclusions without digging into the details. In fact, knowing just enough to say something like “promotions at Wegmans don’t work” is worse than not looking at promotions at all. The real value is in getting to that next level of granularity to figure out which promotions work when and where. That is the foundation for a strong trade spend program.

By drilling down into promotions for different retailers, products, and regions, you’ll be able to uncover the success stories where promotions paid off the best. Was that $1 off coupon at Wegmans effective in North Carolina? How about the Northeast? Which of your products perform the best under promotion? Which retailer shows the most sales lift with trade spend? Once you know what works well, you can choose which promotions to replicate, or apply lessons learned to similar markets. A data visualization tool like Crisp’s dashboards can help you drill down to get to these answers easily.

The biggest mistake suppliers make with trade spend is jumping to conclusions without digging into the details.

Know your chargeback categories

Looking through a deductions statement can present a dizzying array of chargeback categories and promotional events. And often, those statements don’t actually explain what each of your vendor chargebacks mean. Just a few categories of Manufacturer Chargebacks (MCBs) you might be paying for include:

• Demo: used for in-store sampling and promotional displays
• Mass market opening: promotions for a new store or product placement
• Promos: used for monthly promotions at retailers
• Show order or salesman samples: used for showcasing products at trade shows or sales meetings

With all of the different types of promotions, it’s important to understand the breakdown of your own spend and use categories to identify what type of spend is working for you. Which promotional categories are performing best? Which activities should you be doing more of? Analyzing chargebacks by category can give you valuable direction on the types of promotional activities that are the best fit for your products.

It’s important to understand the breakdown of your own spend and use categories to identify what type of spend is working for you.

How to use Crisp to design successful promotions

As part of Crisp’s partnership with UNFI, Crisp developed a Chargebacks dashboard to reveal valuable trade spend insights. Pulling data directly from UNFI, the Chargebacks Dashboard provides up-to-date MCB data without the need to read invoices, download reports, or manipulate spreadsheets. You can easily view chargeback data over time and quickly filter by region, retailer, product, and date to evaluate promotions. The dashboard also includes insights such as:

• Promotional sales lift: View sales and chargeback dollars for a given retailer over time to evaluate the sales impact of promotions.
  
• Trade spend efficiency: This metric calculates trade spend as a percentage of sales, and helps you understand the overall effectiveness of different promotions and identify the retail, product, and timelines that give you the biggest bang for your buck.
  
• Chargebacks by category: Crisp’s dashboards not only break down manufacturer chargebacks by category, but also provide definitions of each chargeback type, so you can understand where your dollars are going and why.
  
• Invoice details: Once you’ve filtered on the parameters you want to explore, Crisp provides an exportable list of invoice numbers, so you can follow up with brokers or distributors on any issues that need attention.

With this information at hand, it’s easy for suppliers to design more effective promotional strategies. Here’s an example: say a retailer proposes a promotion for an upcoming holiday baking season. Your first step might be to look at last year’s promotions for that retailer and evaluate trade spend as a percentage of sales. This will give you a directional sense of whether or not the promotions are worth doing. Then, click into your products to see which performed the best during the promotion. Were some better than others? Finally, think about timing: when were these promotions most successful? You may decide, for example, to focus on promoting the product with the best trade spend efficiency, but start running the promotion even farther ahead of the holiday this year. By taking control of your trade spend, sales teams can not only keep costs down, but drive meaningful growth and build value with distributors and retailers.

To learn more about how Crisp dashboards can help you design an effective trade spend strategy, contact us today for a demo.