Tradespend is the amount that a manufacturer/vendor spends to promote a product in-store. Typical in-store promotion vehicles include discounts/coupons and supporting ads in a retailer’s circular.
However, in the industry, tradespend is the term used to describe all the costs associated with selling to a retailer. Here is a general list of those costs, but there may be additional buckets not identified here:
- Payment Terms
- Annual Fees
- Slotting Fees
- Free items on Launch
- Return Fees
- Reverse Logistics Fees
- New Stores Fee
- Introductory Allowances
- Volume Pricing
- Transaction Costs
- Promotions to end-consumers (BOGO/TPR)
- Tagging of Retailer in External Marketing (TV, Radio Print ads)
- Ads in Retailer Circulars
- Sampling
On average, tradespend amounts to 13.5% of a vendor’s revenue. Some retail channels have much higher tradespend averages, like drug, which is typically 20%+ in the first year. Some channels, like club, have the lowest tradespend requirements, usually amounting to less than 5%.
Based on these averages, tradespend is not a trivial expense and vendors need to factor it into their projections.
Typically, there is not much a new vendor can do to get tradespend down in the first year. There is significant demand to get on-shelf so vendors usually have to take the terms that retailers offer. Vendors can get tradespend down over time, but not by much.
Usually, the largest bucket in tradespend is promotions to end-consumers. And this makes sense because retailers want to make sure that the vendor’s products sell, so offering promotions make’s sense. If a vendor is already spending on external store marketing and that marketing is driving meaningful in-store sales, then the retailer may be open to reducing tradespend requirements. External store marketing is generally defined as digital marketing and/or analog (TV, radio, print) marketing.
