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Gross-to-Net Waterfall

Build the complete list-to-pocket cascade across 5 trade-term layers, then read the four sentinel verdicts every G2N review should land on. The same interactive model the full RGM Academy course uses for Trade Terms Lesson 2 — no auth, no paywall.

Updated 23 April 2026Extracted from the Trade Terms module, lesson 2: Gross-to-Net Bridge
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Scenario walkthrough

Tap any section to explore in detail

5.1Scenario setup

The starting SKU, market, and assumptions the model makes.

You're an RGM Director preparing for the annual Joint Business Plan with your largest grocery account. The headline numbers your Sales team uses say Trade Spend = 22% of gross sales, Pocket Price Realisation in the 'high 70s'. But Finance has been asking why net revenue grew slower than gross revenue for three quarters running, and your CFO wants a single chart that shows where every cent between list and pocket goes — by layer, by sentinel band, and as a function of the retailer's own margin position.

The SKU is a mainstream 12-pack pack at $42.90 list price per case, 2,000,000 annual cases (~$85.8M gross), $5.99 retail shelf price per unit. Default contract layers (typical mid-sized FMCG account): 5% on-invoice structural, 2.5% on-invoice efficiency, 3.5% off-invoice performance, 8% off-invoice promotional, 3% off-invoice consumer.

Your job by Friday: build the Net Incremental G2N Bridge for this customer, run the four sentinel diagnoses (PPR Band, Invoice Flexibility, Retailer Posture, Leakage Concentration), and bring back BOTH a defensible 'protect' position AND a structurally-improved counter-proposal that holds total GTN constant while improving Invoice Flexibility.

Your objective

Use the calculator to quantify the full list-to-pocket cascade, classify the customer on the four sentinel bands, then test reallocation scenarios that improve structural posture without increasing total trade investment.

Key assumptions

  • The calculator models a single SKU × single customer × annual contract. Cross-customer / cross-SKU portfolio effects sit in Trade Terms Lessons 3-7 (tiering, efficiency, optimisation, profitability, negotiation).

  • On-invoice deductions reduce the invoice cost (visible to the retailer at the line-item level). Off-invoice deductions are paid as rebates / accruals (settled separately, often by Finance). The split matters because on-invoice is permanently visible across the supplier base; off-invoice is more flexible to reallocate year-over-year.

  • Performance rebates are conditional on growth / distribution / assortment targets; Promotional allowances fund TPR, display, and feature; Consumer allowances fund multibuy, coupon, and loyalty mechanics. The model treats all three as distinct but applies them as % of list price.

  • Retailer-side math assumes 12 units per case (typical FMCG mainstream pack) and uses the user-supplied shelf price to compute Front Margin (= shelf revenue − invoice cost) and Back Margin (= performance + promo rebates received). Front + Back = Total Margin, benchmarked against the 28-35% ALIGNED band for branded FMCG.

  • Sentinel thresholds (PPR ≥70 EXCELLENT, on-invoice share <30 FLEXIBLE, retailer total margin 28-35 ALIGNED, largest-layer share <25 DIFFUSE) match the lesson's AI Strategist calibration anchors and the in-app Challenge grading. Drift between any two surfaces would be a P0 alignment bug.

5.2Controls & toggles

Every input the calculator exposes, its range, and what it changes.

ControlRangeDefaultWhat it changes
List Price per Case$1 – $200 in $0.10 steps$42.90 (mainstream FMCG mid-tier per case)Sets the top of the bridge. Every GTN rate is computed as a % of this; moving it scales every dollar metric (Gross Sales, Net Sales, Pocket Revenue, Value Leakage) linearly without changing the structural diagnosis or sentinel bands.
Annual Volume (K cases)1K – 100,000K in 100K steps2,000K casesTotal annual case volume in thousands. Scales absolute-dollar metrics linearly; percentage rates and sentinel bands are unchanged. Where the bridge gets its $M value-leakage figure.
Retailer Shelf Price$0.50 – $50.00 in $0.10 steps (per unit)$5.99 per unit (assumes 12 units per case → $71.88 shelf revenue per case)Consumer-facing shelf price. Enters only the Panel 2 retailer-side math — sets Shelf Revenue per case and therefore Front Margin. Does not affect the manufacturer's GTN, PPR, or value leakage.
On-Invoice Structural Discount0% – 15% in 0.5% steps5%Channel/customer structural discount. Single biggest driver of Invoice Flexibility — every percentage point here is permanent and visible on shared supplier pricing databases. Once granted, very hard to claw back.
On-Invoice Efficiency Discount0% – 10% in 0.25% steps2.5%Conditional on logistics + payment behavior (full pallets, minimum drops, prompt payment). The under-priced efficiency bucket — usually worth 2-4pp in a well-managed contract.
Off-Invoice Performance Rebate0% – 15% in 0.5% steps3.5%Conditional on growth / distribution / assortment targets. Funds the retailer's back margin and is the main lever for lifting conditionality without changing the on-invoice ceiling. Typically the most under-invested bucket in mature contracts.
Off-Invoice Promotional Allowance0% – 15% in 0.5% steps8%Trade promotion funding (TPR / display / feature). Typically the largest single deduction in an FMCG contract — and the one that most often appears in BALANCED or CONCENTRATED banding for Leakage Concentration.
Off-Invoice Consumer Promo0% – 10% in 0.25% steps3%Multibuy / coupon / loyalty mechanics. The line where a Trade Terms contract physically touches the TPO calendar — the same dollar often appears in both lessons.
Panel TabsManufacturer | Retailer | SummaryManufacturerPanel 1 shows the G2N waterfall and per-layer $/case table from the manufacturer's side. Panel 2 flips the same math to show front + back margin from the retailer's side. Panel 3 surfaces the four sentinel bands and the layer-contribution + PPR trend charts.
5.3Step-by-step exploration

7-step guided exploration of the scenario.

  1. Read the default scenario

    The calculator initialises at a typical mid-sized FMCG customer template: list price $42.90/case, 2M cases/year, 5% structural / 2.5% efficiency / 3.5% performance / 8% promo / 3% consumer. The Manufacturer panel is open by default. Read the four KPI tiles + the per-layer breakdown table.

    Expected outcome: Total GTN = **22.0%** of list. Invoice Price = **$39.68/case**. Pocket Price = **$33.46/case**. **PPR = 78.0%** → green tile (EXCELLENT). Gross Sales **$85.8M**, Pocket Revenue **$66.9M**, **Value Leakage $18.9M annually** (the visible cost of every layer combined). Largest single deduction is Promo at 8.0% (36.4% of total GTN). No warnings fire — this is a defensible baseline contract.
  2. Switch to the Retailer panel

    Click Panel 2 — Retailer View. Same math, retailer's side. Read the four lines (Invoice Cost, Back Margin Income, Effective Cost of Goods, Shelf Revenue) and the three-tile Front / Back / Total Margin breakdown.

    Expected outcome: Invoice Cost **$39.68/case**; Back Margin Income **+$4.93/case** (Performance 3.5% + Promo 8% on $42.90); Effective COGS **$34.75/case**; Shelf Revenue **$71.88/case** (12 × $5.99). Front Margin **44.8%**, Back Margin **6.9%**, **Total Margin 51.7%**. The Total Margin tile turns AMBER — Retailer Posture = **OVERINVESTED** (>35% threshold). Two sentinels firing different signals: PPR is EXCELLENT but Retailer is OVERINVESTED. Translation: the spend mix is fine, but the LEVEL may be too high — you may be paying more than category norm for this customer.
  3. Open the Summary panel and read the four sentinels together

    Click Panel 3 — Summary Metrics. Four big tiles at the top (GTN Rate, Pocket Realisation, Retailer Total Margin, Annual Value Leakage), then the four-band Sentinel Diagnosis grid below. Read the bands as a stack — PPR Band, Invoice Flexibility, Retailer Posture, Leakage Concentration.

    Expected outcome: PPR Band = **EXCELLENT** (78.0% realisation). Invoice Flexibility = **MODERATE** (34% of GTN is on-invoice — close to the LOCKED threshold of 50%). Retailer Posture = **OVERINVESTED** (51.7% total margin). Leakage Concentration = **BALANCED** (Promo at 36.4% of GTN — the biggest bucket but not a single-layer monopoly). Two greens, two ambers — the customer is profitable to serve but structurally improvable.
  4. The 58-cent trap — what 'permissive' contracts look like

    Reset (back to default), then push five layers to a permissive-contract scenario: Structural 12% / Efficiency 7% / Performance 10% / Promo 12% / Consumer 6%. Watch every panel respond.

    Expected outcome: Total GTN = **47%**. Pocket Price = **$22.74/case**. **PPR = 53.0%** → red (CRITICAL). Annual Value Leakage = **$40.3M** (nearly half the gross). All FOUR warnings fire: PPR<55, GTN>35, on-invoice>12, single layer (Structural OR Promo) >8. The G2N rate that 'looked manageable' on the deck has secretly consumed 47 cents of every list dollar. This is the Hook scenario reconstructed from defensible layer values, not a single headline number — and it happens slowly, 0.5-1.0pp of PPR per year, until five years of compounding lands here.
  5. Structural-to-performance swap at constant total GTN

    Reset. Now shift money WITHIN the same total: drop On-Invoice Structural from 5% to 1% (-4pp) and raise Off-Invoice Performance from 3.5% to 7.5% (+4pp). Total GTN stays 22%. Total spend stays the same. Read the bands.

    Expected outcome: Total GTN unchanged at **22%**. Pocket Price unchanged at **$33.46/case**. **PPR unchanged at 78.0%** (EXCELLENT). But on-invoice share of GTN drops from 34% to **15.9%** → Invoice Flexibility flips from **MODERATE to FLEXIBLE**. Same total spend, but the structural posture is dramatically better — every future negotiation now starts from a more flexible ceiling, and the 4pp moved into Performance is conditional on the retailer hitting growth targets. This is the canonical 'same money, better structure' counter-proposal that wins in JBP rooms.
  6. No single layer is the culprit

    Reset, then test each layer at maximum in turn (resetting between). Try: Structural 15% alone; Performance 15% alone; Promo 15% alone; Efficiency 10% alone. Compare the PPR drops.

    Expected outcome: Maxing Off-Invoice **Performance to 15%** → PPR drops to ~**66.5%** (HEALTHY). Maxing On-Invoice **Structural to 15%** → PPR ~**68%** (HEALTHY). Maxing Efficiency / Promo / Consumer alone barely shifts PPR out of EXCELLENT. Now max **Structural AND Performance together** (15% + 15%) → PPR drops to **~56.5%** (CONCERNING). PPR erosion is a CUMULATIVE multi-layer story; that is why the bridge surfaces every layer side-by-side. A single 'big' layer is rarely the problem; the problem is two or three layers all running at the high end together.
  7. Build the Friday recommendation

    Reset. Build a defensible counter-proposal: hold total GTN at the current 22% but improve Invoice Flexibility. Try Structural 1% / Efficiency 4.5% / Performance 6.5% / Promo 7% / Consumer 3% (sum = 22%). Read all four sentinels. Then size the conditional-spend lift across the contract.

    Expected outcome: Total GTN unchanged at **22%**. PPR unchanged at **78.0%** (EXCELLENT). On-invoice share of GTN = 5.5/22 = **25%** → **FLEXIBLE**. Largest single layer (Promo) drops to 7%, share = 32% → **BALANCED**. Conditional spend (Performance + Efficiency + Consumer) lifts from 9% to 14% of the total — 5pp shifted from unconditional to conditional. The Friday recommendation: 'Same total spend, three sentinels green instead of two, conditional share lifted from 41% to 64% of total trade investment. Pricing Lesson 2 says the average 1pp PPR recovery is worth ~+8.7% operating profit at typical FMCG margins — a year of 0.5pp PPR recovery from this restructuring is roughly $429K of incremental gross profit on this single SKU at $85.8M gross.'
5.4Reading the output

Every KPI, the formula behind it, and how to interpret a positive or negative value.

KPIFormulaHow to read it
Pocket Price Realisation (PPR)PPR = (Pocket Price ÷ List Price) × 100The single most important G2N metric. EXCELLENT ≥70% / HEALTHY 60-<70% / CONCERNING 55-<60% / CRITICAL <55%. Every 1pp of PPR recovery is revenue-equivalent to a 1% list-price lift — at typical FMCG operating leverage that translates to ~+8.7% operating profit per Pricing Lesson 2. Without active management, PPR drops 0.5-1.0pp per year through normal trade-negotiation ratchet.
Invoice Flexibility (on-invoice share of GTN)= On-Invoice Rate ÷ Total GTN Rate × 100Diagnostic of how 'locked-in' your structural pricing position is. FLEXIBLE <30% / MODERATE 30-<50% / LOCKED ≥50%. A LOCKED on-invoice share means next year's negotiation starts from a structurally lower ceiling — you have kept this year's PPR at the cost of every future pricing move. Always prefer to shift money into off-invoice conditional buckets unless there is a compelling structural reason.
Retailer Posture (Total Margin)= Front Margin % + Back Margin % (both as % of shelf revenue)How much margin the retailer makes on this SKU vs category norms. UNDERINVESTED <28% / ALIGNED 28-35% / OVERINVESTED >35%. An OVERINVESTED retailer with EXCELLENT manufacturer PPR means the spend MIX is right but the LEVEL may be too high. An OVERINVESTED retailer with CRITICAL PPR means the manufacturer is over-paying without recovering the cost in pocket realisation. Both Front and Back contribute — Back is what the manufacturer controls year-on-year.
Leakage Concentration (largest layer share of GTN)= Max layer rate ÷ Total GTN Rate × 100Diagnostic of single-bucket dependency. DIFFUSE <25% / BALANCED 25-<40% / CONCENTRATED ≥40%. A CONCENTRATED bucket (almost always Promo or Structural) is the highest-priority layer to attack first — moving 4-5pp out of one bucket and across two or three smaller buckets typically improves PPR by 1-2pp without changing total spend.
Annual Value Leakage= Gross Sales − Pocket Revenue (= Total GTN Rate × Gross Sales)Total annual dollars given back to the retailer across all five layers. This is the figure to put on the cover of the JBP brief — a 1pp shift on any layer changes this by about 1% of Gross Sales. At default ($85.8M gross / 22% GTN), every 1pp of GTN reduction is worth $858K/year of recovered cash flow on this single customer.

Read the four sentinels TOGETHER. PPR Band answers 'is the cumulative cascade defensible?'. Invoice Flexibility answers 'how locked-in is the structural position?'. Retailer Posture answers 'is the retailer over- or under-paid vs category norm?'. Leakage Concentration answers 'where to attack first?'. The healthiest possible reading is EXCELLENT / FLEXIBLE / ALIGNED / DIFFUSE. The most common reading in mature contracts is EXCELLENT / MODERATE / OVERINVESTED / BALANCED — defensible today, structurally improvable.

The pre-JBP check: re-read all four bands TWICE, once at the customer's current contract, once at the proposed renewal. Any single band degrading from green to amber is a finding to surface in the briefing. Two bands degrading at constant total GTN is a finding to escalate. Cross-reference Pricing Lesson 2: a 1pp PPR recovery delivers ~+8.7% operating profit at typical FMCG margins, which is the trade-investment opportunity-cost hurdle every G2N layer must clear to justify being paid instead of retained in list.

5.55 common mistakes to avoid

Diagnostic patterns that catch most misuse of this calculator in practice.

  1. Mistake 1Tracking GTN at the headline rate without decomposing the 5-7 layers
    Symptom: The commercial team has been reporting 'Trade Spend = 22% of gross' for three years; Finance discovers an additional 11pp buried in off-invoice accruals. Real GTN is 33% — and nobody knew.
    Fix: Run the bridge AT LEAST quarterly per top-20 customer, with each layer broken out as a separate line. The single biggest source of the historic 33%-vs-22% gap is that off-invoice accruals (Performance + Promo + Consumer) settle through Finance, not through Sales — so the commercial team only sees the on-invoice portion. The bridge enforces that visibility.
  2. Mistake 2Treating 'off-invoice' as synonymous with 'conditional'
    Symptom: The renewal deck claimed 'we converted 4pp of structural into off-invoice promotional, increasing conditionality.' But the off-invoice promo was unconditional — the retailer earns it whether they hit growth targets or not. Six months later, growth misses and the 4pp pays out anyway.
    Fix: Conditionality is orthogonal to on-invoice / off-invoice. Off-invoice **Performance** is conditional (target-based). Off-invoice **Promotional** is usually NOT conditional in industry-standard contracts (it funds TPRs the manufacturer wants run regardless of outcome). The bridge's 5-layer decomposition makes the distinction visible — when you reallocate, move into Performance specifically, not into 'off-invoice' generally.
  3. Mistake 3Optimising PPR while letting Retailer Posture climb to OVERINVESTED
    Symptom: PPR holds at 75% (EXCELLENT) for three years running, but Retailer Total Margin has crept from 32% (ALIGNED) to 42% (OVERINVESTED). The CFO asks why retailer profitability on the brand is now 35% above category norm and the answer is 'we kept paying performance rebates that the retailer over-delivered against'.
    Fix: Read all four sentinels every cycle, not just PPR. Retailer Posture climbing from ALIGNED to OVERINVESTED at constant PPR means you are over-paying for outcomes the retailer would have delivered anyway. Re-set the conditionality bar — Performance rebates should be calibrated to STRETCH targets, not run-rate.
  4. Mistake 4Reallocating across layers without checking Leakage Concentration
    Symptom: The G2N restructuring lifted Performance from 3.5% to 6.5% by reducing Structural from 5% to 2%. PPR held; Invoice Flexibility improved. But Promo stayed at 8% and now sits at 47% of total GTN — Leakage Concentration just flipped from BALANCED to CONCENTRATED. One bad year of promotional execution and the entire restructuring unwinds.
    Fix: After ANY layer move, re-check Leakage Concentration. If the shift pushed your largest bucket past 40% of GTN, you traded one structural problem for another. The strongest restructurings are 'spread the spend' moves — reducing the dominant bucket by 2-3pp and adding 0.5-1pp each across three or four others.
  5. Mistake 5Ignoring the Pricing Lesson 2 opportunity-cost hurdle when accepting a new trade-term ask
    Symptom: Customer asks for an additional 1pp performance rebate to fund a category development plan. Sales accepts because 'it's only 1pp' and the customer commits to incremental volume. A year later, the volume materialises but operating profit falls — because the 1pp PPR loss outweighed the contribution from the incremental volume at this SKU's elasticity.
    Fix: Every new trade-term ask must clear the Pricing Lesson 2 hurdle: a 1pp PPR loss is revenue-equivalent to a 1% list-price cut, which destroys ~8.7% of operating profit at typical FMCG margins. The new spend needs to deliver MORE than that contribution lift to be worth the give-away. Bring the bridge into the negotiation with the new ask plotted as a 'proposed' scenario alongside the current — the side-by-side makes the trade-off visible to both sides.
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