The trade promotion spend is the largest discretionary line in most Indian consumer goods P&Ls. It is also the line where the fewest people can answer basic questions about what worked. Ask the brand manager what the ROI of last quarter's biggest scheme was, and you usually get a story rather than a number. Ask the CFO, and you usually get a sigh.
This piece is about the math, not the strategy. The method for getting to honest ROI numbers is covered in our piece on improving trade promotion ROI. Here we just sit with the four numbers themselves, work through the calculation step by step on one scheme, and look at what the pattern usually looks like across a portfolio.
The four numbers every CFO should know
The first number is the total trade spend as a percentage of revenue. For Indian consumer brands, this typically runs 12 to 18 percent. Some categories run higher (impulse, low-frequency premium), some lower (commodity, B2B). Every CFO knows this number.
The second number is the share of that spend that leaks. Cannibalisation, pull-forward, subsidy, inefficient targeting. Across the audits we have run, this share is consistently 30 to 40 percent of the gross trade spend. Almost no CFO knows this number.
The third number is the ROI variance across schemes in the same portfolio. Some schemes return 100 to 200 percent. Some return zero. Some go meaningfully negative. The spread in the same quarter, the same brand, the same category is wide. Once you see it, the planning conversation changes.
The fourth number is the payback uplift from stopping the losing schemes and reallocating to the winning ones. Across the brands we have run this analysis for, the uplift is roughly three to five times the recovered margin in the first year. The portfolio gets healthier, the planning gets sharper, the spend gets more disciplined.
The math on one scheme, end to end
To make the abstraction concrete, here is the calculation on one real scheme (numbers anonymised, structure intact).
The scheme ran on a 500 gram pack of a snack SKU, through modern trade, for four weeks. The gross volume lift compared to the previous four weeks was 1,000 units. So far, this is the number that lands on the brand manager's slide.
The cannibalisation showed up in the 250 gram pack of the same SKU. That pack lost 380 units of volume in the same period. Net incremental volume was 620 units, not 1,000.
The gross margin per unit at the promoted price was Rs 42. The incremental margin contribution was 620 multiplied by Rs 42, which gives Rs 26,040.
The scheme spend, including the visible discount, the trade marketing accruals, and the modern trade slotting fee, was Rs 18,000.
The ROI is (incremental margin minus spend) divided by spend. Twenty-six thousand minus eighteen thousand, divided by eighteen thousand. That is 44 percent positive ROI. The scheme worked, but less impressively than the gross volume lift suggested. If the brand had used the gross number, the implied ROI would have been over 130 percent.
Why this math is rarely done
Three reasons it does not happen in most CPG businesses.
The data joining is hard. The volume data is in the ERP or the modern trade sell-out feed. The scheme spend is in finance. The cannibalisation across SKUs requires linking related packs by hand. Without somebody taking ownership of the join, the analysis stops at "sales went up".
The brand manager owns the upside, finance owns the spend, nobody owns the ROI. The brand manager has every incentive to celebrate the gross lift. Finance has every incentive to question the spend. Nobody is paid on the integrated number. So the integrated number does not get computed.
The next quarter's plan is already approved. By the time the previous quarter's data is clean enough for the analysis, the next plan is locked. So the analysis becomes a post-mortem nobody acts on, and the cycle repeats.
What the pattern looks like across a portfolio
When we run this analysis across a full portfolio (typically 20 to 50 schemes in a quarter), the distribution is consistent.
Roughly 20 percent of schemes return over 100 percent ROI. Heavy festival bundles, high-impulse categories, smart cashback structures. These are the schemes the brand should run more of.
Roughly 40 percent return 0 to 50 percent. Workhorse schemes. Net positive, modest, defensible.
Roughly 25 percent return between negative 25 and zero. The schemes that look like they worked because the volumes moved, but the margin gain did not cover the spend. These are the ones to stop.
Roughly 15 percent return worse than negative 25 percent. Schemes that actively destroyed value. Usually a combination of high subsidy plus high cannibalisation. Stopping these is the single biggest lever in the portfolio.
The before-and-after pattern
What happens after a brand starts measuring honestly is consistent across the businesses we have seen do it.
In the first quarter, the data analysis is the project. The team learns the join, learns the math, learns the patterns. The planning continues as before because the analysis is too late to change it.
In the second quarter, the analysis informs the plan. The negative-ROI schemes get dropped. The spend gets shifted to the positive-ROI patterns. The total spend stays roughly the same, the portfolio of schemes shifts noticeably.
By the third quarter, the brand recovers 20 to 40 percent of the previous spend as margin, either through reduced waste or through reallocation. The CFO sees the impact. The brand manager has a sharper portfolio story. The whole conversation about trade marketing changes from "did we hit the volume" to "did we hit the margin".
What to do this week
Pick the three biggest schemes you ran last quarter, by spend. For each, get a comparable SKU and channel that did not run the scheme as your control. Compute the gross lift, subtract the estimated cannibalisation, multiply by margin per unit, divide by total spend. Three numbers, computed honestly, will tell you more about your trade marketing than the quarterly review deck did.
If you want help running this on your portfolio with a senior analytical team that has done it many times in Indian CPG, talk to us.