In one line
Gross-to-net is the walk from gross sales at list price to net sales, after trade spend. The P&L then takes off product cost, marketing and overheads to reach profit.
What it does
- Gross sales are shipments at your price to retailers. Trade spend comes off: trading terms, deal funding, loading discounts and listing fees. What is left is net sales.
- Cost of goods takes you to gross profit. Media and overheads take you to EBITDA; depreciation to operating profit; interest and tax to net income.
- Deals and loading show up as trade spend, not marketing, so they cut net sales rather than appearing as a cost line.
Business and brand
Impact on the businessP&L, cash, share price
- Trade spend is often the largest marketing-related cost: 12 to 20% of gross sales in published benchmarks, and 12 to 17% in Countermove.
- Gross margin is the headroom every other cost is paid from.
- Investors value net income and cash, so the bottom of the P&L moves the share price.
Impact on the brandMemory, loyalty, pricing power
- Heavy trade spend teaches retailers and shoppers to expect deals.
- A healthy gross margin funds the brand media that builds memory.
- Price taken through trade terms rather than the shelf protects the brand's price point.
Try it
Walk the P&L
Set a deal and a price change for one quarter and follow every line from gross sales to net income.
| Line | Bar | €m | Change |
|---|---|---|---|
| Gross sales | 32.8 | ▲ 7.10 | |
| Trade spend | -6.9 | ▼ 3.77 | |
| Net sales | 25.9 | ▲ 3.33 | |
| Cost of goods | -12.7 | ▼ 2.64 | |
| Gross profit | 13.2 | ▲ 0.68 | |
| Media | -2.1 | · | |
| Overheads | -7.5 | · | |
| Depreciation, interest, tax | -1.7 | ▼ 0.17 | |
| Net income | 1.9 | ▲ 0.51 |
Notice: Trade spend is 21.0% of gross sales and gross margin 50.9% of net sales. Net income +€0.51m against no deal and no price change.
Runs Countermove's market engine: the reference soft-drinks market, three brands, rivals holding their plans so only your change moves the result.
Sources
- IFRS 15, Revenue from Contracts with Customers: consideration payable to a customer reduces revenue
- Strategy& consumer-goods trade-spend benchmarks
- Farris, Bendle, Pfeifer & Reibstein (2010), Marketing Metrics, Wharton School Publishing