Overspending on Trade Promotions? How to Find Out and Fix It

By: 

Promomash
Summary: Overspending on trade promotions is a common challenge for CPG brands, often leading to diminished profitability instead of increased sales. To optimize trade spend, brands need structured oversight, measurable KPIs, and data-driven strategies. Red flags include low promotional ROI, excessive discounts with minimal sales lift, high trade spend relative to sales growth, and lack of visibility into outcomes. Solutions involve conducting trade spend audits, aligning promotions with clear KPIs, leveraging AI and predictive analytics, exploring alternative tactics like loyalty programs and product bundling, and implementing post-promotion analysis (PPA). By adopting these strategies, brands can transform trade promotions into a competitive advantage, ensuring every dollar drives measurable sales and profit growth.

Trade promotions are a powerful lever for driving sales, but naturally every dollar spent on them decreases incremental profit margin. And it’s not an expense that can be avoided. In a highly competitive retail landscape, brands face pressure to invest heavily in promotions to keep their products on-shelf. All parties involved – retailers, distributors, and sales/brokers – are incentivized through promotions, so it is ultimately on the brand to figure out how much investment is required to survive, and how much is optimal to drive more sales.

Without careful planning and structured oversight, spending will spiral into overspending and promotions that erode net profits instead of enhancing them. So, the first challenge in assessing whether we are spending “the right amount” on trade promotion is balancing the investment with an increase in volume that results in the maximum benefit to gross profit dollars.

While spending on promotion is a must in this industry, it should not be done without the ability to measure the performance of said promotions. By examining current industry averages and trends, best practices, and key performance metrics, and doing structured analyses that assess the net impact of trade spending (both immediate and longer term), CPG brands can take a proactive approach to trade promotions, provide reasoned guidance to their sales team, and ensure that every dollar spent works harder and returns measurable and consistent lift in sales and profit.

Signs You Might Be Overspending on Trade Promotions

So how do you know if you’re overspending? Many times, brands don’t realize it until it has become a serious problem. Here are some red flags to watch for:

1. Low Promotional ROI: If the return on investment (ROI) for your trade promotions consistently falls short, it’s a red flag. Studies show that 60-70% of trade promotions fail to break even—a staggering statistic that suggests many brands are wasting a significant portion of their trade budgets on promotions that aren’t working.

2. Excessive Discounts Without Incremental Sales: While discounts can spur short-term sales, they often eat away at profitability quickly. If a promotion’s incremental sales (sales generated solely because of the promotion) don’t cover the cost of the discount, the promotion isn’t just ineffective—it’s actively harming your profitability. If you run a deep discount you want to see an incremental sales lift, but you also want to see your baseline sales increase in the months following (repurchasing).

[Below is an example of a report that measures baseline and incremental sales. This type of visual facilitates the analysis required to determine whether promotions are generating sales long after their expiration date.] 

3. High Trade Spend Relative to Sales Growth: In recent years, many CPG brands have been ramping up their trade budgets to keep up with competitors. However, if trade spend is increasing faster than sales growth, it’s time to re-evaluate whether your budget aligns with your sales targets and actual returns. Trade rate (trade spend as a percentage of revenue) typically averages 25 to 30%, and can vary by category and stage of growth, but should always be managed in the context of sales performance. Follow the data and make changes accordingly.

[Below is an example of a report that measures spending as a percentage of gross revenue. Setting a target percentage and actively monitoring it can help brands avoid overspending.]

4. Lack of Visibility into Spending Outcomes: If you feel like you’re flying blind, it’s a red flag. In the absence of clear data on how each promotion impacts sales and profitability, it’s easy to keep funding ineffective tactics. This lack of visibility can result in repeated, ineffective promotions that seem essential on paper but offer little real value.

Key Strategies to Identify and Reduce Overspending

To optimize trade spend, CPG brands need to start with a focus on getting data with efficiency, precision, and clarity. Here’s how to get started:

1. Conduct a Trade Spend Audit

A trade spend audit provides a clear picture of where your promotional dollars are going and how well they’re performing. Start by evaluating each promotional tactic’s effectiveness at a granular level—by product, channel, and region—to identify which tactics are profitable and which need refinement.

A comprehensive audit often reveals hidden inefficiencies, such as underperforming promotions in certain regions or redundant discounts on already well-performing products. By focusing resources where they’re most effective, brands can recapture wasted dollars and improve the efficiency of future promotions, therefore increasing their chances of profitability with those items, in those regions, and with those retailers.

2. Align Promotions with KPIs

Trade promotions shouldn’t be approached as a one-size-fits-all strategy; they should be tailored to achieve specific objectives. Instead of setting generic sales targets, brands should define clear KPIs (key performance indicators) like lift in sales volumeincremental revenue, and net profit after trade spend. By aligning trade tactics with precise KPIs, brands can more accurately gauge promotion effectiveness and avoid overspending on tactics that don’t drive the desired results.

A comprehensive trade management platform like TradeGenius by Promomash can help brands track these KPIs. With in-depth analytics that integrate real-time sales and shipment data through an exclusive partnership with Crisp, brands are empowered to be agile and fine-tune promotions as they progress rather than waiting until the promotion is over to analyze. This level of control empowers teams to pivot or discontinue ineffective promotions, reallocating budgets to initiatives that support healthier growth.

3. Embrace Data-Driven Decision-Making with AI and Predictive Analytics

With the rise of AI and predictive analytics, brands no longer need to rely on guesswork or lagging sales data to shape trade promotions. Instead, they can leverage predictive models that analyze historical sales, consumer behavior, and seasonal trends to forecast a promotion’s potential impact. Industry leaders are already using these insights to optimize their trade spend by identifying the ideal timing, discount levels, and target markets for each promotion.

While advances in AI technology are democratizing the availability of advanced analyses, the vast majority of smaller and mid-size brands still may find themselves needing to outsource the capability. Whether it’s done in-house or by a partner, investing in AI-enabled trade promotion management (TPM) software can push brands to shift from reactive to proactive promotional planning, reducing overspend and maximizing ROI.

4. Consider Alternative Promotional Tactics

Discounts aren’t the only way to promote a product. As consumer preferences evolve, brands are finding creative ways to engage customers without eroding margins. Here are a few examples:

  • Loyalty Programs: Instead of offering one-time discounts, consider developing loyalty programs that reward repeat purchases, helping build brand loyalty without cutting into profits.
  • Product Sampling and Bundling: These tactics allow customers to try new products or combinations, increasing the likelihood of cross-sell opportunities without relying on steep discounts.
  • Digital Promotions: With the surge of online shopping, digital promotions have become an effective way to reach targeted audiences. Digital promotions are often more cost-effective, providing brands with control over budget, targeting, but keep in mind it becomes difficult to track return with 3rd party digital programs at retail.

By diversifying your promotional tactics, you create touchpoints that keep customers engaged while preserving unit profitability.

5. Implement Post-Promotion Analysis (PPA) to Continually Optimize

One of the best ways to control trade spending is through continuous learning. Post-promotion analysis (PPA) helps brands determine whether a promotion achieved its goals, assess incremental sales, and gauge overall profitability. For brands committed to improving promotional efficiency, PPA is essential to avoid repeating the same mistakes and instead replicate successful tactics in future campaigns.

Many brands that have adopted PPA find that this insight gives them an edge, helping them adapt their strategies based on what’s working in real time. A successful PPA process doesn’t just look at short-term metrics; it examines long-term customer impact, providing a full picture of the promotion’s effectiveness.

The Path to Profitable Trade Promotions

While the industry data suggests that overspending on trade promotions is a common challenge, it’s far from an inevitable one. By taking a strategic approach—grounded in data, targeted KPIs, better analysis, and a willingness to explore new tactics—brands can transform their trade promotions from a source of stress to a competitive advantage. With the right focus on efficiency and data-driven decisions, brands can maximize every promotional dollar, driving both sales and profitability in the long term.

In a business where every penny of margin matters, taking the time to optimize your trade promotions isn’t just wise – it’s essential. Start with a trade audit, embrace data-driven strategies, and continuously refine your tactics to ensure that every promotion is as effective and efficient as possible. This approach not only safeguards your budget but positions your brand to maximize profit…which will in turn make your company more valuable. And that’s a benefit you can take to the bank!

At Promomash, we’re proud to be able to help CPG brands keep their trade spend in check every day with our industry-leading platform and services. If your brand needs help in this area, contact us and let’s talk.

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