Promotion P and L
A promotion is almost always judged on the volume sold during the period, set against an ordinary week. The figure is spectacular and says nothing: it adds together new sales, purchases the shopper would have made anyway and merely brought forward, and volume taken from neighbouring lines on the same shelf. The three are not worth the same, and two of them are paid for later.
The full calculation runs to a few lines and is seldom done, because it forces two numbers into the open that nobody likes to put forward: the share of pantry loading and the share of cannibalisation. Putting them down, even roughly, changes the verdict more often than expected. A promotion can turn out positive only through its supplier funding, with every unit sold on deal making the result worse. That case is stated outright, because it calls for a different decision.
Promotion P and L
How to read the result
What you enter
- Everyday shelf price, VAT rate and net cost price
- Discount depth, length of the promotion and baseline weekly volume
- Total volume sold during the promotion
- Share of pantry loading and share of cannibalisation, with the margin of neighbouring lines
- Supplier funding and the cost of running the operation
How to read the result
- The net result reads against zero, not against the volume sold
- The incremental share of promotional volume is shown separately
- The break-even uplift gives what it would have taken to come out even, to be set against what was achieved
- Where no volume can pay for the promotion, the output says so in plain words, with no unreachable threshold shown
What the result does not tell you
- The baseline is an assumption until it comes from a control scope. Understated, it turns a failure into a success, and the error shows up nowhere else.
- Pantry loading and cannibalisation are parameters here. Measuring them means tracking neighbouring lines and the weeks that follow, which this calculation does not do.
- No effect on the reference price is modelled. Repeated, a promotion shifts what the shopper holds to be the normal price, and the return to list gets more expensive each time.
- The calculation holds at one line and one operation. An annual promotional plan obeys diminishing returns that cannot be inferred from this result.
Store traffic and its effect on the rest of the basket sit outside the scope. On a footfall driver, that is often where the case for the promotion is made.
A first thirty-minute conversation
Thirty minutes are enough to frame a retention, expansion or pricing issue, and see whether there is work to do together.