Most of Your Marketing Budget Is Rent
A large share of what you are accountable for is not marketing at all. It is contra-revenue — money that never reaches the top line, paid to retailers for access. Until you separate the rent from the demand, every efficiency conversation you have is about the wrong number.
Somebody slides a number across the table and calls it the marketing budget. It is large, it is yours now, and the expectation attached to it is that it will produce growth in proportion to its size.
Open it up and a substantial share of that number is not buying anything a consumer will ever see. It is slotting fees. Off-invoice discounts. Temporary price reductions. Retailer deductions and chargebacks you did not authorize and cannot easily contest. It is the price of being on a shelf and staying there, negotiated between your sales organization and a buyer, and charged to a line with your name on it.
That is not a complaint about the sales team. It is a category error, and it is sitting in the middle of the number you will be judged on.
The accounting already disagrees with the org chart
Here is the part most marketing leaders are never walked through, and it is not a matter of interpretation. Trade spend is treated as contra-revenue. It does not sit in operating expenses beside your media budget. It reduces gross sales on the way down to net sales, which means it disappears from the top line before anyone gets to the section of the P&L where marketing lives.
The practical consequences are worth stating plainly, because each one lands on you.
Booking trade spend as a marketing expense rather than as contra-revenue overstates both revenue and gross margin at the same time. Every decision made downstream of those two figures — pricing, hiring, production runs, what you tell an investor about unit economics — gets made on numbers that are not real. This is common enough in growth-stage brands that it is worth checking personally rather than assuming.
It also means a large share of your accountable budget never appears as marketing spend anywhere in the financial statements. It appears as revenue the company never collected. You are answering for money that, in accounting terms, was a discount.
Share of United States trade promotions found to have lost money — against 59 percent worldwide — in the most widely cited study of the question. CPG companies globally put roughly a fifth of revenue through this channel.
Read that source line again
You will hear that figure quoted at you. It will be attributed to McKinsey, confidently, in a pitch meeting, probably by someone selling trade promotion software.
It is not McKinsey's finding. McKinsey published it in 2019 and footnoted it to a Nielsen report from 2016. Trace the citations on a dozen vendor pages and they converge on that single 2019 article, which is itself a citation. The number a marketing leader will be handed as current consultancy research is a decade old and belongs to somebody else.
It is also narrower than the way it gets used. A promotion that lost money is not the same as a promotion that did nothing — some bought trial, some defended a facing, some were the price of a listing that carried the rest of the year. And it is a promotion-level finding being deployed as a judgment on entire budgets.
Worth sitting with, because it is the same problem one level up. If the headline number about the second-largest line item in your industry can travel for ten years without anyone checking its parentage or its scope, be careful what you accept about your own lines from people with something to sell.
Splitting the number
The work is not complicated. It is just nobody's job, which is why it does not get done.
| № | The line | What it actually is | What it buys |
|---|---|---|---|
| 01 | Slotting and listing fees | Rent — the posted price of access | Presence, not demand |
| 02 | Off-invoice discounts and price reductions | Rent — price, in another costume | Volume while it runs |
| 03 | Deductions and chargebacks | Rent — involuntary, and often unaudited | Nothing. It is leakage |
| 04 | Displays, end caps, features | Contested — placement you pay for | Interruption; sometimes trial |
| 05 | Demos and sampling | Demand — and measurable | First purchase |
| 06 | Retail media | Contested — trade money behaving like media | Depends entirely on how it is bought |
| 07 | Brand and awareness | Demand — and slow to read | Everything above, more cheaply, later |
Rows four and six are where the argument happens, and they are the rows worth your attention. Retail media in particular is funded out of trade budgets at most companies while behaving like advertising, which means it is measured by whichever team happens to claim it. That ambiguity is convenient for everyone and useful to no one.
Do not read the map as a hierarchy. Rent is not waste. A brand with no shelf has no business, and access has a price like anything else. The point is that rent and demand answer to different logic. Rent is negotiated, and you improve it by negotiating better, auditing deductions, and walking away from doors that cost more than they return. Demand is built, and you improve it by making something people come back for. Running both through one number, judged by one metric, guarantees you manage at least one of them badly.
Why this lands on you and not on finance
Finance already knows. The contra-revenue treatment is in the filings; the gross-to-net walk is a standard slide. Nobody is hiding anything.
What is missing is that the person accountable for the blended number is usually the person with the least authority over its largest component. Trade terms are negotiated by sales. Deductions arrive from retailers. Your leverage sits almost entirely in the demand half — and the demand half is the smaller half.
So when the board asks why marketing efficiency is not improving, and the number they are looking at is mostly rent, you will find yourself defending a figure you do not control with tools that only reach part of it. That conversation does not get better with effort. It gets better with a different number.
Which is the whole ask here, and it is a reporting change rather than a strategy: split the budget in two and report them separately from your first board meeting onward. Rent, with its own owner and its own trend line. Demand, with yours. Then the efficiency question has somewhere to land, and the answer to "why is this not working" stops being a story and starts being a location.
- Trade and marketing report as one number — if the board sees a single figure, they are drawing conclusions about demand from the price of shelf.
- You are new enough to ask naively — the first quarter is the only time "why are these in the same line?" reads as diligence rather than as a complaint.
- Deductions are unaudited — if nobody can tell you what came back last quarter and why, the leakage is real money and it is nobody's job yet.
- Retail media is growing fast — the faster it grows, the more urgent it is to decide which half it belongs to before the answer becomes whoever needs the win.
- It is not the fight when trade is genuinely small — a direct-to-consumer brand with modest retail presence has a different problem, and this reorganization will burn credibility you need elsewhere.
- It is not the fight if sales already owns the number cleanly — if trade sits under sales with its own P&L and its own accountability, the split has already happened. Go work on demand.
One conversation. No deck. Just the number you inherited.
A conversation is a working hour on the actual decision in front of you — not a pitch, and not a proposal you have to read afterward.
Request a conversation Or: run the pruning test →