The Overlooked Impact of Retail Deductions
According to PwC’s June 2024 Pulse Survey, 44% of finance leaders say increasing tech to reduce costs is a top priority this year. Yet technology investments often bypass one of the most persistent drivers of hidden margin erosion: retail deductions.
While deductions are sometimes seen as a back-office issue, the financial impact is significant. On average, CPG manufacturers lose $100,000 per $1 million in revenue to invalid deductions. Beyond lost revenue, the consequences include margin leakage, delayed cash flow, and distorted reporting—issues that affect overall financial performance.
Why Traditional Processes Fall Short
Many organizations still rely on spreadsheets, siloed systems, and manual workflows to manage deductions. These methods create challenges such as:
- Limited visibility into claim activity and root causes
- Slow resolution of invalid deductions
- Inconsistent reporting across departments
- Increased administrative workload on finance teams
The result is recurring revenue loss and missed opportunities for margin protection.
Evolving Approaches to Deduction Management
To address these challenges, organizations are adopting more strategic approaches that emphasize prevention, speed, and visibility. Key practices include:
- Centralized Data Management – Creating a single source of truth across Finance, Sales, Logistics, and A/R.
- Automation and AI – Reducing manual effort by quickly identifying and resolving invalid claims.
- Cross-Functional Alignment – Ensuring deduction management is not siloed but tied to trade promotion, finance, and logsitic objectives.
- Outsourced Partnerships – Leveraging external expertise to reduce internal strain and accelerate resolution.
Technology as a Margin Protection Lever
Modern solutions like DeductionsLink™ enable companies to reduce non-trade deductions by 10–20%, improve profit margins by up to 15%, and gain deeper visibility into root causes. By treating deduction management as a strategic priority rather than a tactical process, businesses can turn a chronic challenge into a margin protection opportunity.
Conclusion
Retail deductions may seem like a routine cost of doing business, but left unmanaged, they erode profitability and weaken financial performance. By embracing automation, centralized data, and cross-functional alignment, CPG manufacturers can turn deduction management into a competitive advantage. The organizations that act now will not only protect their margins but also build the financial agility needed to thrive in today’s evolving retail landscape.
Want to learn more about how we can help? Contact us at solutions@inmar.com.