Beyond Depletion Allowance: The Top 8 Mistakes Wineries Make With Pricing Management
Every winery/importer has the same ultimate goal with pricing management: knowing the true net dollar sales amount of your wine. Now of course, that means getting a solid, comprehensive handle on everything (and we mean everything) gross-to-net – and not just across a product, but broken down by distributor, by region, by sales representative. Getting this level of detail is truly where your business can put a cork in that leaky bottle and start increasing profits.
But because most pricing management solutions focus this around depletion allowances (DA’s), a lion’s share of the attention for calculating profit and net sales revolves in those promotions. It’s true that centralizing the manual processes around DA’s to calculate profit with true distributor agreement data (versus third-party data) is a large step in the right direction. However, DA’s aren’t the only promotional expenses you need to factor in. And chances are, you’re still missing the visibility and control over a surprisingly large portion of spend.
There’s a percent of expenses impacting the bottom line revolving around other wine promotion overhead that is getting largely ignored, or at the very least, isn’t included in the data your finance, sales, and executives need to truly understand– what are you really selling your wine for? Or even, is selling my wine here profitable?
Here are the top 8 mistakes your three-tier winery or import business might be making with wine pricing and expenses:
- You aren’t accurately accounting for the cost of your samples: Sampling programs are a surprisingly complicated promotion. Details about who is covering the expense can be hard to keep track of when distributors may run multiple samplings in a month, each with different agreements. Are you splitting the cost of the sampling with the distributor 50%? Are you covering the cost 100%? What happens when you get an invoice from the distributor that includes sales tax? How does the tax get captured?
- Sales incentives aren’t being included in your calculations: Yes, sales incentives should be counted toward specific promotions. Where do your bonuses, gifts, or incentives get tracked? Are you able to apply those expenses by region? Do you see how it reflects the bottom line of your wine pricing and revenue?
- You are bundling your promotion expense types to fit your system: There are multiple promotion options a winery could execute to try and increase sell-through. What’s the difference between a demo or a promotional wine dinner? Outside of DA’s, the next largest expense may be sampling and demos, but wine lists, demos, tastings, and even special events and charity sponsorships should be included. We know these are distinct tactics, but you’re likely bucketing these to fit your price management or GL systems. Knowing the expense type and what you are booking gives you the ability to break these expense types down and know what works, what doesn’t, and what impacts your bottom line in the right (or wrong) direction.
- You aren’t creating or taking advantage of controlled promotional programs: How do you know if a concentrated effort on a product or a region is working? What if you want to run a blitz to push something? You need to create a budget, track expenses, and track revenue/sales across that singular effort. Whether you create a soft cap or a hard cap, have a program cross distributors or states, you should have the flexibility to concentrate efforts and measure expense against revenue to determine success.
- You’re keeping a bucket of expenses in a disparate system: Tracking all expenses is a step in the right direction. But, now your data is scattered – billbacks are in one system, other expenses are in Concur (or some other expense tracking software) and no details are making their way into the accounting system and thus not into your reporting on gross-to-net, profit, and pricing considerations.
- You aren’t able to accurately track and attribute expenses from non-distributor vendors: Let’s say you work with a regional demo company that has coordinated a demo across multiple areas. Without the ability to expense the invoice across the specific geographic regions when the bill comes in instead of just the region the company is headquartered, your regional sales rep isn’t exactly motivated to capture the expense against his sales and bottom line pricing. And integration of this data against the proper region or rep is likely getting lost.
- Your price and promotion management isn’t integrated with your ERP: Many expense tracking systems will integrate with your finance system, but only to a certain extent and often only surface level. With no detailed clarity on expense types, regions, distributor, etc. to track overall profitability and true expense of the promotion, it’s difficult to gauge success.
- Your sales team has to call finance to update distributors in meetings: The old adage of “time is money” is still alive and well today. Any time a distributor comes to a QBR wondering where their money is, their sales rep is sent on a wild goose chase in multiple systems, calling finance to see if a check has been cut, etc. The more time your sales rep spends doing the follow-up, the less time they’re creating new sales.
Tracking your programs accurately doesn’t have to be complicated. Seeing the full financial impact of those programs doesn’t have to be either. Stop margin leaks with 100% visibility and control on all of your pricing and program spend. Being able to see the real promotion spend and pricing data from finance to sales all in one system is more attainable than you might think.
Tradeparency was not only created by people that know the three-tier wine industry, but also by people that know reporting. We created a pricing, promotion, and processing solution that brings finance, sales, and IT together to accurately track every dollar (and we mean it).
Full cycle pricing management goes beyond billbacks and DA’s – it allows you to compose profitable promotional models at any level by delivering the value of complete data.
Contact us today to for a free demo. Only thirty minutes of your time could be worth a lot to your bottom line!