Depletion Data vs. Billback Data: What You Need to Know for Accurate Winery Accounting
If you work in the highly competitive three-tier wine sector, you know that price is the impetus to your brand and your bottom line. So, when it comes to accounting for wineries, getting accurate data is essential.
But one of the most difficult finance challenges for wine producers and suppliers is accurately tracking distributor promotions and pricing details.
Traditionally, winery owners or executives rely on the depletion data provided by their distributors to determine what their billback invoice should be. Dealing with insufficient depletion data and billback invoices that don’t line up is a common source of frustration, requiring hours of poring through spreadsheets only to end up with inaccurate reports and revenue losses.
In the three-tier wine industry, this loss can be to the tune of hundreds of thousands of dollars. Some or most of which you aren’t even aware of.
In this article, we will explore the subtle but mighty difference between depletion data and billback data to sort out how wineries can approach distributor trade management to stop the margin leaks almost instantly.
The Basics of Depletions and Billbacks
Let’s quickly review and level set on some basic definitions and concepts around depletions and billbacks before we proceed:
- Depletion placements data: information provided by distributors regarding to whom wine was sold and at what price. This information is provided to the winery typically through third-party depletion data services.
This rolls up into a…
- Depletion report: how much wine you as a supplier (winery) shipped to a distributor, how much they sold, which retailers or restaurants purchased it, and how much inventory is remaining with the distributor.
Then you get…
- Billbacks (also called depletion allowances): the invoices the distributor sends your winery for what are essentially negotiated allowances when a retailer or restaurant purchases from the distributor at supported price points. Billbacks are all a part of trade spending costs. In many cases, this incentivizes a distributor to spend time, money, and effort on selling your winery’s supply targeted to regional, sell-through, and/or retailer placement goals.
We want to focus on how we move through the pipeline from the depletion data to the billback process. As it turns out, using depletion data to approve or set the billback invoice amounts from distributors is ineffective for many reasons.
The Likely Problem With Your Depletion Data
Most three-tier wineries use the third-party depletion service and report data to reconcile their billbacks/depletion allowances. The main issue is that the depletion data isn’t sufficient to approve or generate an accurate billback invoice. Why?
- Price-Point Data is Inconsistent
It’s hard enough to develop a successful pricing strategy for your three-tier winery. It doesn’t help that distributors don’t provide price point data consistently—some update their price points daily, some do it monthly, and then there is everything in between. There is also inconsistency across formats—some are in cases, others in bottles, for example. Finally, some distributors will have data, whereas some won’t provide it. This lack of streamlining and coherence is problematic for winery finance and accounting and for reconciling billbacks properly and accurately.
- The Timing is Off
The timing of depletion data vs. when the billback is received can be off. It’s not always in sync. What this means is that despite the best efforts of your winery accounting system, your calculations may be off, and the billback invoices won’t match the timing of the when the depletions occurred. This timing mismatch may disrupt the winery’s ability reconcile properly.
- Prices and Deals Don’t Match
This happens a lot. A distributor makes a deal with you, the supplier, to set their price for the wine and what it should be sold at, along with the incentives or ‘chargebacks’ agreed on when certain thresholds are met. The deals are often arranged on the fly, and a handshake deal is made. Later on, the winery will receive a billback invoice—and you find out that the numbers are off and there are no matching deals for what is being billed. Did they sell it at the price you agreed to? Did they sell the amount you agreed to? Was it within the agreed time bracket? Not necessarily.
The unfortunate fact is that most distributors don’t have the systems or infrastructure to track everything consistently and properly. Smaller distributors don’t usually have systems that can handle enough robust data to factor in discounts on bulk sales and other elements in real-time, affecting pricing and, ultimately, their depletion data.
The problem is, all these depletion data issues usually cost you—the supplier—because you’re paying distributors back incorrect amounts that are most often in their favor. Even worse, you don’t have proper visibility to adjust your promotional strategies for better results to your bottom line.
What Can You Do to Fix the Depletion and Billback Dilemma?
When faced with depletion data and the subsequent billbacks, most winery accounting personnel try their darndest to reconcile it all by plowing through spreadsheets and tracking down sales teams to the tune of many staff hours. Despite all this time and effort, in the end, only about 85% of invoices can be matched up against depletions, and even then, it may or may not be accurate. You are often left trying to get the last 15% to align, over and over, until you give up—and take the hit, financially.
While depletion data and billback data often overlap and are perceived as being the same, they are not.
As a supplier, you need to consider what a distributor charges versus what you really owe. That starts with the ability to validate billbacks in real-time against actual deal data, not inconsistent, assumed depletion data that only gets about 70% market coverage. And to get there, you need to centralize your trade management.
By implementing a pricing management solution that pulls all of your product, distributor, market, and territory performance across promotions, incentives, and expenses in one place, you immediately ensure 100% market coverage and, even better, accurate and fast reconciliation for billbacks.
This approach puts you in ultimate control, and that is a far better position to build more effective promotions and distributor programs, and become more competitive in the markets you want to capture, and, most importantly, be more profitable.
The Real Bottom Line on Depletion Data
While third-party depletion data can be useful to estimate what you’ll get billed for and see what distributors are selling, it’s not sufficient in itself. This data is often provided inconsistently across markets and distributors, and void of validated information about the original promotion or depletion allowance agreements.
If you want to avoid paying out unwarranted funds, calculate billbacks to distributors based on real invoicing.
An Effective Pricing Management System is the Answer
Tradeparency’s full-cycle trade spend management system will equip your winery’s finance team to eliminate the inherently error-prone and time-consuming reconciliation of pricing agreements and invoices, and set up your sales staff to expedite pricing approvals.
Stop spending hours trying to manually balance all the data and finally halt the pour of leaky margins to optimize your investments with a complete pricing management, trade spending, depletion allowance, and billback solution.
As a team of wine industry experts, data artisans, and service enthusiasts, Tradeparency works with dozens of top three-tier wineries and importers on their depletion, pricing, and brand victories. Drop us a line today to book a free demo. Less than an hour of your time could be worth a lot to your bottom line (and save you hours of struggle in the long run)!