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The Ultimate Jargon Busting Guide to Trade Revenue Management

Fri, Jul 21, 2017

We’re often asked what does Trade Revenue Management mean? While it has a lot to do with rebates, pricing, claims and deductions there is so much more that doesn’t often get an explanation. We decided to compile the ultimate jargon busting guide to Trade Revenue Management to help you cut through the confusion surrounding a deceptively complex topic.

1.  Trade Promotions Management (TPM)

Trade Promotion Management is the management of all trade promotion activities and business processes, from managing promotions to administering pricing and rebate agreements.

2.  Trade Revenue Management

Trade Revenue Management encompasses all the characteristics of TPM but on a much wider scale. Trade Revenue Management is the executional elements connected to promoting and trading across industry verticals like manufacturing, wholesale distribution, and retail.

3.  Accruals

When a company sets up and confirms Promotions and Fees, it is liable for those defined commitments, and needs to accrue for its liability. Considerable time may pass before customers submit claims and the claims are processed. Accruals are the monies the company sets aside to meet those claims that are not off invoice discounts.

4.  Attributes

Attributes are characteristics of Customers or Products that are used to group the customers or products for joint processing in some way. A customer or product may be assigned a number of types of attributes, allowing customers and products to belong to multiple groups.

5.  Billback

Billbacks may be used as a component of a Promotion. If a discount is given on goods sold, rather than being taken off the invoice, the customer must ‘billback’ for the discount at a later date. It is expected that the customer will lodge a claim with the seller, however the amount is often deducted from future payments being made to seller (see Deduction).

6.  Claims

Claims are requests made by a customer to the manufacturer or distributor for payment. A claim may be to cover previously agreed upon billback or lumpsum components of a Promotion, or for example to cover for breakages or spoils. Proof of performance of an activity may be required to receive payment for a claim.

7.  Chargebacks

Chargebacks are rebates calculated on the sales transaction. The customer purchase triggers some sort of discount which in turn is paid for by the vendor. It’s important to be able to calculate and accrue when the sale occurs as a negative billback. This acts as a Debit upon settlement to the vendor as a receivable or a reduction in payables.

8.  Deduction

Generally an amount deducted by a customer from the amount invoiced by the manufacturer or supplier. Often taken by customers (without prior authorization) who feel they have qualified for advertising or promotional allowances that have not been paid by the manufacturer or supplier. Without adequate tools, attempting to reconcile deductions taken can create a tremendous administrative burden, with considerable costs to both the supplier and the customer.

9.  List Price

List Price is derived from the Base Price, by taking into account any adjustments applicable to the Cost Price, for the particular List Price Type.

10.  Lump Sums

May be a component of a Promotion. The manufacturer pays the customer a lump sum of money, not necessarily based upon the volume of product sold. This money may be used for cooperative advertising (coop), shelf space (slotting), or retail promotions such as aisle displays.

11.  Off Invoice

As a component of a Promotion, the discount which may be % or $ based is taken and generally subtracted from the invoice line total.

12.  Promotion

Often a short term pricing arrangement (but not necessarily so), that utilizes temporary trade discounts. A Promotion, involves a selection of products offered to a group of Customers, generally with more strategic pricing arrangements than the list price. Each Promotion has a start and an end date, the pricing components that are included, the Customer and Item selection criteria. The component pricing for the Promotion may be by Item, by Customer, by Customer/Item combination or Overall.

13.  Quantity Breaks

Discount pricing is based upon the quantity ordered: e.g. the greater the quantity, the greater the discount. Breaks may be used for Price Lists at the product Item or some Item attribute level, and Break Types and Break Rules may be applied to a Promotion component.

14.  Trade Spend

The money spent by a manufacturer to promote sales to members of the distribution channel. Distribution channel organizations include distributors, retailers, buying groups, and brokers.

5 Pillars of a Sound Trade and Revenue Management Strategy

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