Trade ROI
The return a trade marketing activation earns: incremental margin minus trade investment, divided by trade investment and multiplied by 100. Measuring trade ROI accurately requires establishing a sales baseline and isolating the promotional uplift from other variables.
Why it matters
Trade investment is one of the largest cost lines for an FMCG brand, so knowing which activities return more than they cost decides where next year's budget goes. Without a stated method, almost any promotion can be argued to be a success.
Trade investment is typically one of the two or three largest lines in an FMCG profit and loss account, and routinely the least well measured. Trade ROI is the attempt to answer a simple question about it: did this activation return more margin than it cost?
The formula, and the four quantities it depends on
Trade ROI = (Incremental Gross Margin − Trade Investment) / Trade Investment × 100
The arithmetic is trivial. The difficulty is that three of the four inputs are easy to confuse:
- Incremental revenue is sell-out above the baseline, not total sell-out during the promotion.
- Incremental gross margin is the margin those incremental units earn at the brand's regular net price, after cost of goods and before any trade investment. Keeping the discount out of this figure means it is counted once, in the investment, rather than twice. This is the figure the calculation uses.
- Trade investment is the full cost of the activation: discount funding on every unit sold on promotion, listing and slotting fees, display production, and the field cost of executing it.
- Baseline is what would have sold without the activation, and it is the number that decides the answer.
Why the baseline decides the result
Change the baseline assumption and the same promotion can look like a success or a write-off. A promotion selling 10 000 units against an assumed baseline of 6 000 shows 4 000 incremental units. Move the baseline to 8 000, a defensible adjustment if the period is seasonally strong, and the incremental volume halves. The ROI falls by more than half, and can turn negative, because the trade investment stays the same and is subtracted from a margin that has halved.
This is why trade ROI figures are difficult to compare between companies, and sometimes between teams in the same company. A number without a stated baseline method is not really a measurement.
Margin, not revenue
The most common error is calculating on revenue. A deep discount can lift sell-out substantially while destroying margin: the incremental units are real, but the discount is paid on every unit sold during the promotion, including the baseline units that would have sold at full price anyway. A promotion can post strong uplift and negative ROI at the same time, and frequently does.
What distorts the number
- Cannibalisation. Promoting one SKU often pulls volume from another in the same portfolio. Gross uplift on the promoted line overstates the net gain to the brand.
- Forward buying. Retailers buy ahead at the promoted price and order less afterwards. Shoppers can do the same at home, stocking up and buying less in the following weeks. Measuring only the promotional window captures the peak and misses the trough.
- Sell-in accounting. Counting shipments rather than consumer offtake records a promotion as successful the moment stock leaves the warehouse.
- Unallocated costs. Display production and field execution are often held centrally and never charged back to the activation that used them, which flatters every ROI figure.
Using the number
Trade ROI is most useful in comparison rather than absolute terms. A single figure for one promotion invites arguments about the baseline. The same method applied consistently across mechanics, categories, and accounts reveals which kinds of activation reliably return and which do not — which is the decision the number exists to support.