Trade Spend Strategy: How to Allocate Promotional Dollars Without Destroying Your Margin

Trade Spend Is Your Second Largest Cost of Doing Business in Retail

After cost of goods, trade spend is typically the largest line item in a CPG brand's retail budget. For brands in conventional grocery, trade spend as a percentage of gross sales commonly runs between 15 and 30 percent. Brands that do not plan for this going in often find themselves funding retailer programs reactively, with no clear picture of what the spend is generating in return.

The goal of a trade spend strategy is not to minimize spend. It is to deploy trade dollars in a way that drives measurable velocity improvement, strengthens retailer relationships, and returns more than it costs. That requires a plan built before the first promotion runs, not assembled from whatever deals the retailer's sales rep calls to pitch you on.

Understanding the Components of Trade Spend

Trade spend encompasses all the promotional investment you make to support your products at the retail level. The primary categories are off-invoice allowances, which reduce the cost you charge the retailer for product during a promotional period; scan-based promotions, which fund a discount at the point of sale and are reconciled after the fact; ad features, which fund your inclusion in a retailer's circular or digital promotional vehicle; display programs, which fund in-store positioning beyond the standard shelf set; and slotting, which is the one-time cost of authorization.

Each of these serves a different purpose and reaches the consumer at a different point in the purchase decision. A well-structured trade plan uses a mix of these tools intentionally, not because a retailer asked and you said yes. For a complete breakdown of how slotting specifically works, what it costs, and when it is negotiable, read Slotting Fees Explained.

The Difference Between Funded and Unfunded Promotions

Promotional events that are not adequately funded create two problems. First, they can damage your relationship with a distributor or retailer if the deal is not honored correctly. Second, they generate velocity spikes that are not sustainable, which can actually make your baseline velocity look worse in the periods immediately following the promotion as the pantry-loading effect wears off.

Every promotional event needs to be modeled before you commit to it. What is the expected lift in units during the promotional period? What is the total cost of the promotion, including the discount depth times the expected volume? What does the post-promotion velocity look like, and does the overall event generate enough incremental gross profit to justify the investment?

If the math does not support the promotion, declining is the right answer even if the retailer is disappointed. Committing to promotions you cannot sustain financially is a short-term relationship move with a long-term margin consequence.

Building an Annual Trade Spend Plan

A functional trade spend plan starts with your target accounts, moves to the promotional calendar for each, and then allocates budget against specific events based on their expected return. You are not trying to participate in every program every retailer offers. You are selecting the events that reach your target shopper at the right moment and can be funded at a depth that actually drives incremental trial and repeat.

Work with your broker to map out the promotional calendar for each of your target retail accounts at the start of each year. Understand which events are mandatory for new items, which are discretionary, and what the funding requirements look like for each. Then allocate your trade budget against the events that deliver the most strategic value. If you are still in the pre-authorization stage, the Retail Buyer Pitch guide covers how to present your promotional commitment as part of the initial buyer conversation.

For new items in the first year of distribution, promotional participation is typically heavier because the goal is trial. As the brand establishes baseline velocity and repeat purchase behavior, the promotional intensity can shift toward maintaining velocity and supporting specific seasonal or category events.

Protecting Your Base Margin

The single most important discipline in trade spend management is knowing your margin floor and not going below it. Promotional events that push your net margin into unprofitable territory do not serve your business regardless of the velocity they generate. Volume at a loss is not a strategy.

Establish your promotional price floor before you enter any retailer negotiation. That floor is the minimum retail price at which you can still generate an acceptable margin after accounting for the discount, the trade funding, distributor costs, and cost of goods. Any promotional request that pushes below that floor is one to decline or restructure.

Measuring Trade Spend Effectiveness

Every promotional event should be evaluated after the fact. What was the lift during the promotional period versus the baseline? What was the total cost of the promotion? What was the incremental gross profit generated? Did baseline velocity improve in the periods after the promotion, suggesting that the event drove new trial and repeat?

Brands that do not measure promotion effectiveness have no rational basis for their next budget decision. They are spending money on what feels right rather than what the data shows works. That is how trade spend budgets grow without corresponding sales growth. Velocity measurement is the foundation of that analysis. Read What Is Retail Velocity to understand what the right metrics are and how to track them accurately.

Your broker should be providing post-promotion analysis as part of their account management function. If they are not, ask for it. The data exists and it is essential to managing your trade investment intelligently. JDALL's Client Growth and Insights Services are built around exactly this kind of performance tracking and trade spend optimization.