Why Promotional ROI Matters?
Knowing the ROI of an individual promotion is a step in the right direction, but your goal should be to have a ROI metric across promotions. If calculated consistently, you will have a way to assess the relative benefit of promotions across products and customers. This, combined with an understanding of the tactics and timing, will enable you to understand what is working, and what’s not.
How to Use Promotional ROI
The purpose of Promotion ROI and other key performance indicators (KPIs) is to enable an “eyes wide open” view of your business. This doesn’t mean you simply use this to eliminate “bad” ROI promotions. There are plenty of reasons why you keep “bad” promotions.
When you have a library of actual ROI there are three important insight areas to leverage:
- Trends – Is ROI improving/eroding over time?
- Comparisons- Look at ROI across customers, products, timing, & tactics. What price points and tactics perform best and worst? What is influencing results?
- Benchmark- When planning for a future period, compare planned ROI to historical performance. Are you planning for success?
Your goal should be to continuously improve results. ROI analysis should be used to guide strategic planning and guidelines for the sales team on promotion frequency, discounts/price points, and tactics. Do more of what works, and less of what doesn’t.
Some Best Practices
- Start Early
- This is a process that will only benefit you and your organization. Get this process embedded into your ways-of-working now! The impact that trade spend can have on profit is significant, and setting up a framework to effectively monitor ROI will set your organization up for better results.
- Keep it Simple, Measurable and Understandable
- Remember “perfect is the enemy of good.” Focus on making sure the implementation of these calculations is understood and easily measurable by all involved parties
- Consistency Across Promotions is Key
- Using the same key calculations across all promotions, regardless of market, volume, etc. This ensures relative, clean visualization of promotional performance across comparison dimensions.
- Ensure Use Across Sales Organization
- Making this a common practice across all sales regions provides a consistent, measurable metric that helps you understand one of your biggest expenses.
How to Implement Promotional ROI
You have two options. The first is DIY; building, updating and managing your own process and tools. The advantage here is cost and flexibility. And in early days, this may work for you. The disadvantage to DIY is the work required to execute the process and update Excel-based tools. As customers, products, and promotions grow, so does the possibility of unintended errors and risk of things like deleted spreadsheets.
The second way of working and producing ROI is with the use of a Trade Promotion Management (TPM) product like BluePlanner from UpClear. The advantage to BluePlanner is standardization and automation. The platform structures all of the data needed to produce ROI and delivers reports that enable you to assess performance across customers and products. With these improvements come process changes that your team will need to adopt, and the investment in the system- a fraction of your trade spending expense that quickly pays for itself.
Too often CPG manufacturers become interested in ROI only when there is a problem. Then, there’s a mad dash to calculate ROIs for promotions across the last [insert number] years. It becomes a massive project that takes an inordinate amount of time. Here, an ounce of prevention is worth a pound of cure. Set up your process and tools to include everything you need to calculate ROI. The sooner you do this, the faster and easier it will be to address that inevitable question: “What am I getting for all of the money I’m spending?”