A Closer Look at CPG Deductions Categories
In the dynamic world of consumer packaged goods (CPG) distribution, it's not uncommon to come across a few financial speed bumps known as deductions. These are amounts subtracted from your invoice payments, usually connected to promotional campaigns, logistics fees, and a range of other factors. Through this article, our goal is to provide a high-level overview of these potential deductions, helping to demystify them and ultimately making your company's financial landscape easier to understand and navigate.
However, remember, you're not alone in navigating these sometimes complex deductions. That's precisely where we, TrewUp, come in. We're here with a friendly wave and a robust system designed to simplify this process. Our area of expertise lies in automating the deductions management process. We handle everything from downloading and interpreting to categorizing these complex deductions. This results in a neatly organized, readily accessible overview of your financial landscape, available at a simple click of a button.
Consider us your helpful companion, diligently working to put together the puzzle of your financial scenario. Once we've got all the pieces correctly placed, we provide you with a comprehensive picture of your financial situation, represented as detailed, actionable cost data. With TrewUp on your team, managing CPG deductions can go from being a daunting task to a manageable part of your routine.
Promotion:
If you've ever offered discounts, released coupons, or hosted sales events, then you've dipped into the 'Promotion' deductions category. These deductions aren't just numbers - they're vital insights into the success of your promotions. The challenge is finding the valuable information among all these deductions. But rest assured, each line item brings you closer to understanding your promotion's performance.
Advertising:
Advertising often results in deductions. Advertising can include Advertising with a retailer for in-store flyers, mailers, online ad placement or with the distributor to advertise to their retail customers.
Audit - OI Recovery:
The 'Off Invoice (OI) Recovery' category is essentially an adjustment tool used when your company agrees to an off invoice allowance/promotional price reduction for a specific period. During this agreed time, if there are any product shortages, or if the distributor extends that promotion to the retailer, the distributor will levy deductions to maintain a balance in the books. This ensures that any unforeseen discrepancies during the promotional period don't disrupt the agreed financial arrangement.
Spoils:
The 'Spoils' category covers goods that can't be sold due to damage or expiration. When these items are unsellable, the distributor or retailer may pass the cost along or charge an ongoing spoils allowance as a percent of sales.
Product Short (Overage):
The 'Product Short (Overage)' category comes into play when a distributor finds fewer (or more) items than ordered. This results in a deduction from the manufacturer's payment.
Fair Share:
The 'Fair Share' deduction is a fee that retailers charge to cover the costs associated with the execution of in-store activities related to your brand. These activities can include store resets, hanging Temporary Price Reduction (TPR) tags, and others. The deduction is proportionate to the share of your brand's sales in their store, hence the term 'Fair Share'. Each retailer may have a slightly different interpretation of what this entails, but it generally revolves around maintaining and promoting your brand's presence in their store.
Placement:
The 'Placement' category revolves around the expenses linked with securing a spot on a retailer's shelf for your product's new distribution. This is often referred to as slotting, free fills, or simply placement. These terms denote the same concept: gaining visibility and sales potential by ensuring your product has a prominent place in retail stores. Due to the substantial impact of these costs, planning for such deductions is vital. These charges typically represent significant deductions, emphasizing the importance of forecasting and budgeting for these in your financial planning.
Logistics Fees & Fines:
'Logistics Fees & Fines' cover a range of costs from storage and transportation to late fees. Failure to comply with certain regulations can also result in fines. These costs are deducted from your invoice, reflecting the journey your product took from the factory to the store shelf.
Price Protection:
'Price Protection' comes into play when you, as a manufacturer, decide to lower your product price. This policy ensures that the distributor or retailer is not disadvantaged by having inventory bought at a higher price. You, as the manufacturer, will cover the price difference for any unsold inventory.
Cut Case:
The 'Cut Case' category applies when a distributor needs to break down your packaged units to fit into a retailer's inventory. The distributor calculates the labor and cost involved in this process, resulting in a deduction from your earnings.
Understanding the various deductions categories in the CPG industry can be challenging, but with a clear understanding of each, you can more effectively manage your financial relationships with distributors. Remember, clear communication and well-structured agreements are your best allies in minimizing unexpected deductions and maintaining your company's financial health. And, of course, TrewUp is always here to assist you.
