It’s a sad reality, but, in today’s ever-changing marketplace, we’ve lost control of what it’s really costing us to sell our products. We think we know the cost of selling and we think we know how much we receive when we sell. For many CPG companies, both assumptions are wrong.
Let’s look at these costs involved in selling our products:
- We have the traditional COGS, typically set by the supply folks. This is typically the cost to make/buy our products.
- We pay our Sales team to sell.
- We pay our marketing team to make our customers and consumers aware of our products.
- We pay a commission to our broker(s) to assist in selling.
- We pay a distributor to carry our products (eg. Slotting).
- We further pay a distributor to sell our products (eg. Deduction management fees, distributor promotions etc.).
- We pay a retailer to carry our products (eg. Slotting).
- We further pay a retailer to market our products (eg. Display fees, trade shows etc.).
- We further pay a retailer to sell our products (traditional trade spending activities).
Finally, we pay the consumer to buy our product (eg. coupons)
But most likely, that’s not all…
- We pay our direct customer if they pay us in a timely manner.
- We take back products from direct customers who cannot sell our products within the ‘best before’ dating.
- We offer replacement products to retailers who have products near or beyond the ‘best before’ dates.
- We pay penalties and fees to direct customers for a variety of reasons.
- Finally, we give bonus money to customers (both direct and indirect) who meet specified sales targets.
Now, I’m sure that you’re telling yourself that many of these do not apply to your company and, maybe, you’re right. My experience, however, tells me that you are paying more than you think and that the payments are being made using different budgets all over the company (marketing, supply chain, transportation, sales, and finance).
The first step to get your true costs under control is to understand what they are. From this knowledge, you can start to really understand real customer and product profitability.