“Time to move some boxes!“
Trade promotions are critical for selling into the retail industry, such as grocery store chains where I cut my teeth starting in 1980. Getting listed in the chain is only the first step of a daily battle that will test your wits and courage.
That’s where trade promotions come in, a crucial tool for selling-through your product at retail which your wholesale customer expects from you.
Since it almost all involves spending money to make money, be sure to build in profit margin to fund your trade promotions, unless you have deep pockets and are using price to under-cut the competition.
(I use gross profit “margin” not “markup”. A 50% margin means I keep 50% of the sale, a 50% markup means I add 50% to the price I pay, or a 33% margin. It’s easy to mix-up the two and as you can see, that might end up costing you a lot of cash. The food trade uses margin.)
Budget say 15% for promotions, so if your direct cost of goods + general overhead margin is 35%, add 15% promo for a 50% gross profit margin.
Thus if the product costs $1 to make and you add a 20% allowance for overhead like rent and office staff, it costs you $1.20. At 50% margin you should sell it for $2.40, all other factors being equal (competition, product lifecycle, brand position, etc.)
If you don’t budget and still do the promos, you’ll lose 15 points on every sale.
Read here how industry sales pros approached promotions years ago, validated strategies including hemp food-specific ones from HempNut Inc.
Click here for a free download. PDF, 19 pages.
Also, click here for a Cost of Goods Analysis Model, click here for a Cash Flow Analysis Model, and click here for a Cash Flow Analysis Model. All are free and exclusive spreadsheets, written by RR to manage his fast-growing Inc. 500 business in the ’90s.