A Financial Look at Selling Wholesale: 27 CPG Companies Examined

A Financial Look at Selling Wholesale: 27 CPG Companies Examined

“Are our numbers in line with other companies in the space?”

Invariably at a certain stage of our engagements, brands will approach us with some variation of this question. The relative obscurity of “industry standards” for performance metrics at each phase gate of brand development creates an unsettling environment within which to plan growth. Brands yearn for any indication that their operational margins are “normal,” and that other successful companies endured the same growing pains they’re living through. 

Overview

We partnered with Accountfully to aggregate the numbers of CPG companies ranging from $0 to $1mm+ and focused on selling wholesale into brick & mortar retail. We pulled out any revenue/expenses related to other sales channels (e.g. Amazon, Ecommerce etc.)

Our goal is to create a benchmarking guide, based on real data, for the channel so CPG brands can have an informed point of view around what their numbers should look like based on the stage of their company. 

We want to caution against deriving any industry axioms from this limited sample set, and rather discuss these findings for what they are—the beginning of an ongoing exercise in democratizing data.   

To put it in terms of a consumer packaged goods brand, these are the early days. We're selling at the farmer's market, doing some of the production in our kitchen, and, frantically, trying to collect feedback. However, in short order, we'll grow up, commercialize our process, and have a very polished, market-ready product.  

How is that going to happen?

Over the coming months, we will (1) add more companies and (2) be able to see things play out over a longer duration. Both of these will yield a more robust data set. We plan for this to be a recurring series. 

Want to participate in this ongoing exercise? 

The more information we have, the closer we get to being able to provide true benchmarks. We created a form so brands can share their data. None of the questions are required (including your company name). Fill out as much or as little as you like.

THIS DATA WILL NEVER BE SHARED AND IS ONLY BEING USED FOR THE PURPOSE OF HELPING EMERGING BRANDS.

Enter Your Data Here

The Sample Size

We looked at 27 companies in the following ranges. 

The Key Performance Indicators (KPIs)

We looked at the following KPIs across these 27 companies. 

CPG Key Performance Indicator List


The Numbers

We took averages across the total number of companies in each set.  

CPG Benchmarking Guide

Our Main Takeaways

Organize and harness your available data

Regardless of industry, sound business management requires the identification of performance drivers, and the creation of mechanisms to measure those drivers over time. Yet the prohibitive cost of competitive data often leaves brands wondering where to begin. Further, the nuances of CPG in general, and each brand therein specifically, require a tailored approach to measuring indicators of sustainable growth. 

Prior to crafting that approach and identifying those indicators, brands can start by organizing the transactional data they collect into a standardized format. Don’t endeavor to create a perfect system from day one. Instead, look for low hanging fruit to improve your data records immediately, and target iterative improvements over time. For example, if you sell three SKUs in two different case packs, but have 84 unique sales descriptions in Quickbooks, start there! 

As for the specific areas to analyze, we’ve selected some metrics in this sample set to get you started, but it’s imperative to dig deeper into the specifics of your own sales strategy and supply chain to derive any meaningful insight from your own KPIs.

See here for another post that outlines how to use data in a scrappy way along with some additional KPIs.

Understand your cash cycle

Cash flow concerns reign supreme over all other FAQs we field at Rodeo. Revisiting our sample, the consistency of trade spend as a percent of revenue stands out. Our experience with emerging brands generally uncovers a much higher percentage than the 20% rate of this sample (which, coincidentally, falls in line with the legacy industry target rate). Again, this information represents a snapshot in time of emerging brands, all at a similarly nascent growth stage. What we’ll measure going forward, and what all brands need to consider in conjunction with their growth plans, is how trade spend rates grow relative to revenue growth. 

If your business plan dictates a 200% growth rate for 2021, what will that entail for expenses, and more importantly, what will that mean for the timing of cash flow?

As a starting point, use the historical actuals at your disposal to understand the pace and volume of transactions for both sales and expenses. If you’re having a hard time corralling that information, revisit how you’re organizing your transactions! Next, endeavor to measure the length of your cash cycle from raw material purchase to finished good sale, and align that timeline with your growth strategy to create an outline of your cash flow timing. 

Planning the anticipated timing of the cash outlays required to grow your brand is critical. Idiosyncrasies in revenue collection, generally related to product launches and promotions, significantly complicate an already convoluted transaction chain. Marry that sales expense plan with your operating expense plan to understand your timing of cash flows, and adjust any element in the former that will impact your ability to execute on the latter. 

Growing at startup multiples requires an acceptance of a high threshold for risk tolerance, and a malleable plan to stay nimble enough to react to the consequences of operating in a high-risk environment. As it relates to cash management and the mitigation of those risks, if you can answer the question, “How long does it take between a raw material purchase and a finished good payment receipt?” with a reasonable degree of accuracy, you’re off to a good start.

Get smarter about your scale strategy

Interestingly, the sample we’ve collected depicts COGS as a percent of gross revenue in an inversely proportional relationship with revenue—that is to say, as you sell more, your COGS goes down. This apparent trend assuredly will fail to surprise readers; most companies we work with expect, anticipate, and plan for a similar economies of scale impact to benefit the future of their respective businesses. However, given the dearth of business longevity inherent in this startup sample set, the “trend” here likely speaks more to the relative supply chain setup strength of one brand compared to another, than it does to any inherent economy of scale phenomenon. 

Further, pinpointing the trajectory of this impact, the timing of those operational efficiencies, and the net result on operating income at each inflection point of the business continues to elude most emerging brands. Many obsess over initial production margins and spend an inordinate amount of time comparing one production run’s cost to that of the next, yet come out of those exercises short of comprehending the efficiency and scalability—relative or absolute—of their supply chains. Identifying the drivers of those fluctuations, understanding the levers at your disposal to stabilize them, and matching those actions with a coordinated growth plan will unlock the magnitude and timing of your unique economy of scale opportunity.

Takeaway

We’re embarking on this project with Accountfully to bolster the weapons at your disposal, as we’re passionate believers in data democratization, and in bringing opportunities usually reserved for larger enterprises, such as competitive analysis, to emerging brands. Operating a lean startup shouldn’t preclude you from taking decisive action on data derived insights. Start with the transactional data available to all brands—your own—and organize that information to derive the conclusions specific to your brand that will allow you to minimize your growing pains.

A little more about Accountfully

They are fully-outsourced accounting team that strategically partners with brands to help them navigate complex financial challenges and opportunities. 

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