The relationship between CPG sales and finance departments, when it comes to trade finance and promotional spending, can often be adversarial. However, as more successful CPG companies turn to a data-driven analytical approach to managing their trade investment, the central intelligence available positions finance and sales teams to work together toward a common objective – more revenue for sustainable growth.
We have identified 5 ways that finance leaders are working with their sales teams to create better results.
1) They meet regularly with their sales teams
It is surprising that in many organizations finance and sales teams only talk when there is a problem. However, organizations that are seeing improvements in the performance of their trade investment both invest in the
technology to bring timely analytical insight to their organization and invest the time in sharing that intelligence between departments. (See also: A Guide to Strategy Optimization)
For one T-Pro customer, timely post-event analytics (PEA) as part of their Trade Promotion Optimization solution
(TPO), led to monthly meetings between sales and finance to review performance and execution results. These meetings allowed the sales team to focus on the 2-3 insights that they could bring back to their retail partners
instead of wading through the overwhelming data available only to have no new information. Meanwhile, finance is able to see the larger trade investment performance as they pull post-event analytics from all accounts.
These meetings are not designed to highlight what went wrong in the past, but instead focus on addressing execution issues, identifying competitive and category trends and collaborating on future opportunities.
2) They use ROI as a measure of effectiveness, but not the only measure
With the shift from the transactional accounting of trade spend management with an organization’s TPM system to the analytical strategy behind their trade investment supported by a TPO solution, measuring trade spend effectiveness is increasingly critical. (See Also: Why Your TPM Needs a TPO)With the automated harmonization of POS, shipment and spending data as part of the TPO solution, finance teams have real-time access to promotional ROI at the event and customer level. This measure changes the conversation between sales and finance from what was spent to how well it was spent.
Additionally, finance can easily share KPIs such as incremental revenue, incremental profit, incremental volume to further paint a picture of the effectiveness of the activity. For example, a promotion could have a negative ROI, but have significant incremental volume which aligns with a corporate objective.
3) They talk about base volume
When it comes to promotional investment measuring the incremental impact is extremely important. If we accept the premise that promotions are designed to both entice incremental sales and build a loyal base, then we also must look at the impact of promotions on the base. Finance can work with their sales organization to monitor and adjust for the growth or erosion of base volume as a response to promotional activity.
4) They set guardrails that guide planning
The beauty of predictive planning is that the art of the possible is available to all sales people to improve results for the organization and their retail partners. Of course, what is possible is not always best. Finance can put in place guardrails to not only protect their organizations from deep discounting that jeopardizes promotional return, but also stop your sales team from wasting valuable time creating promotional plans that do not get approved. Constraints such as max spend rate or min net unit price as guardrails can guide planning without avoidable frustration.
5) They help build optimal outcomes for incremental funding
Applying constraints can also position your sales team to optimize the volume, revenue or profit of an incremental promotional opportunity using your TPO’s constraint-based modeling capabilities to quantify the optimal predictive result. The finance team’s ability to use these predictive KPIs to work with the sales team to understand the impact on budget and the potential return makes the entire process smoother, more informed and ultimately more effective.Simply stated, it is the data-driven transparency, communication and predictability between finance and sales that can transform results. These 5 practices may mean considering a new way of doing things, but they also map a new path to better outcomes.