Most CPG sales teams evaluate promotions the same way: compare promoted weeks to non-promoted weeks, calculate the volume lift, and declare success if the number is positive. It's simple, intuitive, and dangerously incomplete.
Volume lift doesn't account for baseline cannibalization - the sales that would have happened anyway. It ignores forward buying - consumers stocking up at discount, depressing future full-price sales. It says nothing about margin erosion - whether the incremental volume actually generated profit after the trade spend and COGS are factored in. And it completely misses pantry loading, where you're effectively training consumers to wait for deals.
A promotion that lifts volume 30% but costs $2.50 per incremental unit when your gross margin per unit is $1.80 isn't a win. It's a net loss dressed up as success.
The question isn't "did volume go up during the promotion?" The question is "did this promotion generate more gross margin than it cost?"
Meaningful trade promotion ROI measurement requires five metrics, calculated in sequence:
The quality of your ROI measurement depends entirely on your baseline estimate. Get the baseline wrong and every downstream metric is compromised. There are several common approaches:
The key insight is that consistency matters more than perfection. Pick a methodology and apply it uniformly across all promotions. This gives you a reliable basis for comparing events even if the absolute numbers have some estimation error. A consistent methodology reveals which promotions are relatively better or worse, which is what you need for planning.
You don't need a sophisticated analytics platform to start. Pick your top 10 promotions from last fiscal year. For each one, estimate the baseline, calculate incremental volume, compute cost per incremental unit, and work through to incremental gross margin and ROI.
What you'll likely find is striking: a small number of events drive the majority of your incremental profit, while a significant portion are net-negative on margin. That insight alone is worth the exercise because it tells you where to focus your trade spend next year.
At Strata CPG, we automate this analysis across your full promotion history using our promotion ROI analysis engine. Every event gets scored, ranked, and benchmarked. Those insights feed directly into annual promo planning, where historical performance data powers forward-looking scenario analysis.
The brands that measure promotions rigorously don't just optimize trade spend - they transform it from a cost center into a profit driver.