Gross-to-Net P&L: The Report Most CPG Founders Don't Know They're Missing
Say you pay a retailer $5,000 to feature your product in its weekly ad. Lots of brands record that payment as general marketing on their profit and loss statement. The money went to a retailer, though, so it's trade spend.
Most Founders I work with spend very little time on trade spend accounting, and I want to help you guys use it to find out what each retailer really costs you.
I was joined by Fred Schroeder on May 6 and Aug. 19, 2026, [for a series of webinars]. Fred worked at Procter & Gamble and Coca-Cola's Minute Maid division, then led two trade promotion software companies. Today he's a fractional trade manager for small brands, analyzing their trade spend retailer by retailer. He jokes that he's one of maybe two or three people alive who enjoy trade promotion, and I have to admit that I’m with him on that one.
What a Gross-to-Net P&L Is, and Why Trade Spend Accounting Doesn't Match Your Books
Trade promotion can cost CPG companies 11% to 27% of revenue or more, making it the second-largest expense after the cost of making a product. Your gross-to-net P&L gathers all that trade in one report, like a pay stub for a case of product. It starts at gross sales, your full invoice price, and lists every trade and sales cost down to net revenue. Fred calls it a sales P&L, and it sits alongside your accounting P&L.
Fred's reasoning is kinda beautiful. Picture $12,000 for an ad at Whole Foods and Publix asking for that same money as per-case discounts. Your books might file them in different accounts, but as Fred put it, "trade is trade." GAAP, the U.S. accounting rulebook, agrees and counts most payments to retailers and distributors, including slotting fees and most co-op ads, as a reduction of revenue.
The two statements will differ, which is perfectly normal. Much of your trade happens at indirect retailers, stores that buy through a distributor such as UNFI or KeHE, so your books see only the distributor while your gross-to-net view shows each retailer.
Cultivar's trade spend management service gives Founders a team to check every deduction.
Walking the Statement: From Delivered Price to Net Revenue on a $40 Case
Fred's May 6 example uses a 10-pack case with a $40 delivered price. He left out slotting fees and free fills (two costs of winning new shelf space) to simplify the math. Delivered pricing makes that $40 the published price everyone sees, so you set the starting price the distributor uses with retailers. FOB pricing (free on board) has the distributor collect product and gives it more say over price.
Four lines come off the top first:
Freight nets to zero, because Fred assumes your delivered price covers your shipping cost.
Terms of 2% 10, a 2% discount for paying within 10 days, cost $0.80, so watch for customers who take the discount and pay in 60 or 80 days.
Unsalables, meaning damaged or expired product, cost $1.20. Customers charge for them as a swell allowance, a fixed percentage agreed in advance, or through reclamation, a bill for the actual damaged units.
Broker commissions cost $2.00, though Fred has seen a regional broker's fixed retainer work out to 17% of sales.
Those costs total $4.00 once freight nets out, leaving $36.00 before trade promotion accounting begins.
Where Trade Dollars Actually Go: Off-Invoice, MCBs, and the Case for Scans
Working trade reaches the shopper through the retailer, usually as a lower shelf price. Meanwhile, non-working trade stays with the distributor as inside margin, which Fred says distributors use to top up the roughly 8% delivery upcharge they add for retailers like Whole Foods, since that upcharge falls short of what delivery really costs. Sorting dollars into these two buckets is the heart of trade spend accounting.
Off-invoice allowances, or OIs, are temporary discounts taken straight off the distributor's invoice. Fred often sees a 15% OI four times a year, and distributors can forward-buy, stocking up at the discount until the next window. His safe assumption is that every case ends up discounted, at $6.00 off every $40 case.
MCB stands for manufacturer chargeback, the promotional money a distributor bills back to you after passing a discount to a retailer. You'd expect a 10% MCB on a $40 case to cost $4.00. Distributors calculate it on their wholesale price, though, the published price for their smallest stores, which sits 35% to 40% above your delivered price. At 40%, your $4.00 becomes $5.60, and Whole Foods, with its 8% upcharge, receives about $4.32 of it. Our UNFI and KeHE double markup breakdown uses a $30 case.
Scan promotions pay a set amount on each unit sold at the register, and the distributor adds a small fee of a couple of percent, so nearly the whole dollar reaches the shopper. Scans are Fred's first ask with every retailer, and each yes is a win.
Turning Lump-Sum Fees Into a Per-Case Rate
You gotta divide any lump-sum fee by the cases it moved to find its true cost. Take Fred's $12,000 temporary price reduction (TPR) fee at Whole Foods, where a TPR is a short-term shelf-price cut. If that event moved an illustrative 2,400 cases, it cost $5.00 a case, and weighing that against what each extra case earns tells you whether the event paid back.
On Fred's $40 case, total trade comes to $12.69. His chart assumes retailers see the OI and MCB on about 40% of cases, so about $4.16 reaches them, and $8.53 stays with the distributor, including $2.00 in distributor fees:
Subtracting $12.69 from $36.00 leaves net revenue of $23.31.
Cost of goods sold, set at half the delivered price, takes another $20.00.
That leaves $3.31 of gross profit after sales expenses, also called variable contribution margin.
And that, y'all, closes the case. Against the $40.00 delivered price, $3.31 is about 8%, which still has to cover marketing, salaries, rent, and surprises. Against $23.31 of net revenue, it's about 14%, so always name the number you're measuring against. Fred called that result "pretty challenging," and it leaves little room for error.
Building the Full Picture: Total Business, Distributor, and Key Retailer P&Ls
Fred builds these statements at several levels, and the 80/20 rule tells you which retailers deserve their own.
Build one for your total business.
Add one for each major distributor, such as UNFI and KeHE.
Create a customer P&L, meaning one retailer's own statement, for each of the five to 10 retailers behind 70% to 80% of your sales.
Group every remaining retailer into one line called "all other."
Segmenting turns trade spend accounting into a diagnostic tool, because a healthy total can hide one money-losing retailer. Update the statements monthly or quarterly and compare them "year over year, period over period," as Fred does. Expect your version to evolve, and leave marketing, overhead, and cash flow to other reports.
Trade also gets more complex as your brand grows five or 10 times larger, and Walmart expects a deal equal to or better than your all-in case rate anywhere else.
See how we helped Spirit Tea gain margin visibility by SKU and channel.
Knowing Your Numbers Is Half the Battle
Fred sees trade as an investment where there’s "always more juice in the orange," meaning redeployed dollars can always earn a better return. The 1980s G.I. Joe cartoons said it best, "knowing is half the battle."
Your gross-to-net P&L feeds your cash flow forecast, production plan, margin targets, and lender conversations, and I get seriously stoked every time a Founder with the ganas to drill right down into their numbers builds one.
If you’re scratching your head, send me the retailer or deduction that has you confused, and I'll help you work out what it's really costing your brand.
Frequently Asked Questions About Trade Spend Accounting
What Is a Gross-to-Net P&L in CPG?
It's a sales-facing report that walks each case from delivered price to gross profit after trade and sales costs.
How Do I Calculate Trade Spend as a Percentage of Sales?
Divide total trade by gross sales for the same period, so Fred's $12.69 of trade on a $40.00 case is about 32%.
Why Does My Distributor Charge Me More Than the Deal I Agreed To?
Distributors calculate MCBs on their wholesale price, 35% to 40% above your delivered price, so a planned $4.00 deduction can arrive as $5.60.
Should I Use Off-Invoice Discounts or Scan Promotions?
Scans get nearly every trade dollar to the shopper, while off-invoice discounts spread across nearly all your volume and mostly stay with the distributor.
Related Resources
Cultivar's finance and forecasting service turns your gross-to-net numbers into a cash flow forecast and scenario plan.
Working versus non-working trade, explained shows how trade can take 90% to 95% of an emerging brand's marketing budget.
Alec's Ice Cream case study shows how a weekly cash plan gave one Founder confidence with vendors.
