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Gross-to-Net Waterfall

Follow every step down from the list price to the pocket price, the money you actually keep. Your trade spend sorts into the six trade-terms families by what it buys, plus a governed Other for the lines that fit none of them. Choose whether each family is paid on the invoice or settled later off it, then read the four diagnostics, the health checks every gross-to-net review should land on. The same model RGM Academy's Trade Terms module teaches, no sign-in, no paywall.

Updated 23 April 2026Extracted from the Trade Terms module, lesson 2: Gross-to-Net & Value Split
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Guided walkthrough

Explore the tool, from setup to common mistakes

Five short sections explain the scenario, what each control does, how to read the output, and the mistakes to avoid. Open whichever helps. The tool above works without them.

5.1Scenario setup

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

You run RGM for a mid‑sized FMCG manufacturer and the annual Joint Business Plan round opens in six weeks. Sales reports 'trade spend around 23% of gross' and finance has been asking why net revenue grew slower than gross revenue for three quarters running. Your CFO wants one chart that shows where every cent between list price and pocket price goes: which family takes it, whether it prints on the invoice, and what the retailer earns on the other side of the same numbers.

The default customer base is the one this course starts from: a household‑care unit at a $2.80 list price (a $33.60 case of 12), 3.6 million units a year (about $10.08M gross), a $4.50 shelf price including 20% VAT, and a $1.67 unit cost. The seven family sliders open at those starting rates: Structural 9.5, Efficiency 2.4, Performance 2.5, Promotional 6.0, Shopper Activation 1.5, Partnership 0.5, governed Other 0.5, a 22.9% gross‑to‑net rate.

Your job by Friday: walk the drop from list price down to the money you actually keep, and read the four diagnostics, which are this tool's health checks on the customer base. Price one realization point in dollars, which is a single percentage point of the list price you keep, counted across a full year of volume. Then bring back a counter‑proposal that structures the spend better without adding a cent to the envelope, the total trade money already agreed with this customer.

Your objective

Measure the whole drop from list price to pocket price across the six families of trade spend plus Other, and read the four diagnostic bands. Then test the moves that improve your position at the same total spend: shifting a family between the invoice and a later rebate, and shifting money from one family to another.

Key assumptions

  • The tool models one SKU (stock‑keeping unit, a single product in a single pack size) sold directly to retailers, with all of your customers averaged into one blended customer base. Splitting that base into individual customers, three typical retailer types plus one line for everyone else, happens in the Trade Terms Lesson 2 sandbox inside the course. Lessons 3 to 7 build on it when they group customers into tiers, chase efficiency, and negotiate.

  • Three anchors are accounting facts. Gross Sales is your list price, before anything comes off. Net Invoice Value is the invoice price, what is left after the on‑invoice zone, meaning the trade money that prints on the invoice and lowers the price the retailer pays on the day. Net Sales is the pocket price, what is left after the off‑invoice zone too, meaning the money that settles later as rebates and credit notes. Every company names them differently; the anchors do not move.

  • Placement is a label for where a term sits, and it says nothing about what the money buys. Each family carries a placement slider (its share on‑invoice). On‑invoice money re‑bases the retailer's buying price and is hard to claw back; off‑invoice money settles later and can stay conditional. Moving placement reshuffles the retailer's front and back margin and never changes your pocket.

  • The retailer's side of the same numbers is worked out for you. First comes the shelf price before tax, which the tool labels shelf ex‑tax, with VAT, the sales tax, held at 20% throughout. Their front margin is the shelf ex‑tax minus the invoice price they pay you. Their back margin is the off‑invoice money you settle with them later. And the value pool the two of you share is the shelf ex‑tax minus your unit cost.

  • Diagnostic thresholds match the course exactly. GTN Health sits at 15/30/40, which reads Lean, Healthy, Concerning, then Critical as the terms get heavier. Realization sits at 85/70/60, the same bands counted from the other end, on what you keep instead of what you give away. On‑invoice share sits at 30/50, which reads Flexible, Moderate, then Locked. Retailer margin position is measured against a corridor of 33 to 46, the normal band for household care. Corridors differ by category, so that band belongs to household care, and you work out your own before you judge an account.

5.2Controls & toggles

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

ControlRangeDefaultWhat it changes
List price (per unit)$1.00 to $10.00 in $0.05 steps$2.80 (the starting price this course uses)Anchor 1, the top of the bridge. Every family's rate is a percentage of the list price, so moving the list price moves every dollar figure with it, while the percentages and their band verdicts stay exactly where they were.
Annual volume0.5M to 20M units in 0.1M steps3.6M unitsSets the size of every annual figure: gross sales, trade terms, pocket revenue, and what one realization point is worth in a year. The rates and the bands do not move.
Shelf price (incl 20% VAT)$1.20 to $15.00 in $0.05 steps$4.50 ($3.75 ex-tax)Drives only the retailer‑side math: front margin, margin position, and the value pool. A warning fires when the list price climbs close to the shelf ex‑tax, because when you sell straight to a retailer, it would mean the retailer pays you more than it charges shoppers before tax.
Unit cost$0.10 to $8.00 in $0.01 steps$1.67Sets the gross‑profit line and the value pool. When terms push the pocket below this number, the dead‑net warning fires: every unit sold loses money before overheads.
Seven family sliders (% of the list price)Structural 0-20, Efficiency 0-8, Performance 0-8, Promotional 0-12, Shopper Activation 0-5, Partnership 0-3, Other 0-49.5 / 2.4 / 2.5 / 6.0 / 1.5 / 0.5 / 0.5 (= 22.9% of the list price)What the money buys, sorted into the six families the course teaches in its Trade Terms module. A family is one of the six jobs trade money can do. Added together they make the whole gap between gross sales and net sales, and the largest family is usually the first one you try to optimize.
Set placement (per family, % on-invoice)0% to 100% in 5% steps66.4 / 24.3 / 0 / 13.5 / 0 / 0 / 31.2 (the blended split)Where each family settles. Push more of a family onto the invoice and the invoice price falls, so the retailer earns more front margin and less back margin, and On‑invoice share moves toward Locked. The pocket never moves.
View tabsManufacturer | Retailer | SummaryManufacturerThe Manufacturer view draws the waterfall from shelf price down to your gross profit, and below it a table of the annual dollars each family takes. The Retailer view shows front and back margin, margin position, and the value pool. The Summary and diagnostics view grades the customer base on all four readouts.
5.3Step-by-step exploration

7-step guided exploration of the scenario.

  1. Read the default cascade

    The tool opens on the starting numbers. Read the waterfall left to right: the shopper's $4.50, VAT out, the retailer's own markup out, then YOUR cascade from the $2.80 list down to the pocket, then cost, then what is left.

    Expected outcome: The on‑invoice money takes $0.22 off, leaving a $2.58 invoice price, and the off‑invoice money takes another $0.42, leaving a $2.16 pocket price. That is a 22.9% gross‑to‑net rate keeping 77.1% of the list price (Healthy), earning $0.49 a unit after the $1.67 cost. Across a year that comes to $10.08M gross, $2.31M of trade terms, and $7.77M of pocket revenue, and one realization point is worth $100.8K a year.
  2. Flip to the Retailer view

    Same math, other side of the table. Read the retailer's mirror: front margin (their shelf ex‑tax minus your invoice price), back margin (your off‑invoice money, which reaches them later), and the value pool you share.

    Expected outcome: Front margin $1.17, back margin $0.42, total $1.59 a unit: a 42.4% margin position, Aligned inside the 33‑to‑46 household‑care corridor. The pool, which is the shelf ex‑tax minus your unit cost, is $2.08 a unit, and the retailer holds 76.5% of it. That is a bigger share than the roughly two‑thirds most categories run at. How that split sits, and how each term shifts it, is what Trade Terms Lesson 2 in the course is built around.
  3. Read the four diagnostics together

    Open the Summary and diagnostics view. Four tiles: GTN Health, Pocket‑price realization, On‑invoice share, and Retailer margin position. Read them as a stack rather than one at a time.

    Expected outcome: Healthy / Healthy / Moderate / Aligned. The terms are a normal size, realization is above 70, the floor it has to clear to read Healthy, and the retailer's margin position is inside the household‑care corridor. The one thing left to improve is flexibility: 34.3% of the terms sit on the invoice, a third of the money already locked before any counterpart is asked for.
  4. Prove placement is only a label

    Open the Set placement panel and drag the Structural family from 66% down to 0% on‑invoice, so none of that money prints on the invoice any more. Watch the waterfall, the Retailer view, and On‑invoice share; watch what does NOT move.

    Expected outcome: The invoice price jumps from $2.58 to $2.76, front margin falls from $1.17 to $0.99, back margin rises to $0.60, and flexibility drops to 6.8% (Flexible). Your pocket price does not move a cent. Placement changes how the retailer's margin splits between front and back, and it changes how easily you can reverse the term later. It leaves what the money buys and what you keep exactly where they were. So when a buyer asks you to 'move it on‑invoice to simplify', that ask is doing real work: it hands them front margin and takes away your room to change the term later.
  5. Same money, better structure

    Reset, then move money WITHIN the same total: cut Structural from 9.5 to 6.5 and raise Performance from 2.5 to 5.5. Total terms and pocket hold still; read On‑invoice share.

    Expected outcome: Terms hold at 22.9%, the pocket holds at $2.16, and the on‑invoice share falls from 34.3% to 25.6%: Moderate flips to Flexible. The spend is the same, and three points of it moved out of money the retailer collects whatever happens and into a growth rebate the retailer has to earn. Every negotiation after this one starts from a position where you can hold that money back. That is what a good counter‑proposal looks like in a Joint Business Plan (JBP) meeting: not a cent added to the envelope, and the money inside it built better.
  6. Build the critical stack

    Reset, then push Structural to 20, Promotional to 12, and Performance to 8 (leave the rest at defaults). This is what years of agreeing to 'same as last year plus a bit' add up to.

    Expected outcome: Terms hit 44.9% (Critical) and the pocket falls to $1.54, below the $1.67 unit cost, so the dead‑net warning fires. Dead net is what you are left with after every deduction, and at these terms each unit loses money before a single overhead is counted. Note what got you here: no single family did it. A customer base usually ends up Critical through three families each creeping toward the top of its range, which is why the bridge chart shows all seven families side by side rather than one blended rate.
  7. Run your own numbers

    Reset, then swap the starting numbers for your own: your list price, your volume, your shelf price, your unit cost, and the family rates your largest customer actually runs, which you can read off its trading agreement. Then read the table of annual dollars by family, and what one realization point is worth on your own volume.

    Expected outcome: Carry two numbers into Friday. The first is the annual dollars each family takes, because the negotiation happens family by family rather than over one blended rate. The second is what a realization point is worth on your own volume: at 10M units of a $2.80 list price, that is $280K a year. A realization point you win back adds the same revenue as a 1% list‑price rise, without the risk that shoppers buy less. Your costs have not moved, so 80 to 100 percent of that money reaches operating profit.
5.4Reading the output

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

KPIFormulaHow to read it
Realization (pocket-price realization)Realization = pocket price / list price x 100 = 100 - GTN rateThe share of your list price you keep after every term, and the same thing the GTN bands measure, read from the other end: Lean above 85 kept, Healthy above 70, Concerning above 60, Critical at 60 and below. The 70 floor is the number to memorize. Left undefended, realization loses roughly half a point a year, and each point at the defaults is $100.8K annually.
On-invoice share (how much of the terms sit on the invoice)Flexibility = on‑invoice zone / total trade terms x 100How much of the money has re‑based the buying price before any counterpart is asked. Flexible below 30, Moderate 30 to 50, Locked at 50 and above. On‑invoice money moves in one direction. Granting it is easy, and taking it back later lands on the buyer's desk as a price increase. A Locked read means next year's negotiation starts from a floor you cannot move.
Retailer margin position (total margin as a share of the shelf price before tax)Retailer margin position = (front margin + back margin) / shelf price ex‑tax x 100What the whole relationship earns the retailer, measured against the normal band for household care, which is 33 to 46. Underinvested below it means expect them to push for more; Aligned sits inside it; Overinvested above it is worth pricing, so you know what the extra buys you. Corridors genuinely differ by category, so work out your own band before you grade anything. How you read the tile carries across categories; the numbers on it do not.
The value pool and its splitPool = shelf price ex‑tax - unit cost; retailer share = retailer total margin / poolThe fixed pool of value one unit creates for the two of you to share. Hold the shelf price and the unit cost still and the pool stays the same size. Every term you grant moves value from your side of it to theirs, and every term you win back moves value the other way. The starting numbers here split the pool about 76 to the retailer and 24 to you, heavier on the retailer's side than the roughly two‑thirds most categories run at.
One realization point (annual)One point = 0.01 x list price x annual unitsThe lesson's central number: what one point of realization is worth here, per year, for every year the terms stay where they land. Put every ask the buyer makes into these dollars before you answer it. For a company whose costs and margins sit around the average, a 1% price improvement lifts operating profit by about 11 percent (Marn and Rosiello). A realization point does the same job without putting your sales at risk, because it comes from trimming a term the shopper does not see.

Read the four tiles together. GTN Health answers 'is the depth normal?'. Pocket‑price realization measures the same thing from the other end, counting what reaches your pocket instead of what leaves it. On‑invoice share answers 'how much of this money could I still hold back, or offer again at the next negotiation in return for something?'. Retailer margin position answers 'what does the retailer earn, measured against the corridor for its category?'. The healthiest reading is Healthy (or Lean, if earned) / Healthy / Flexible / Aligned. The reading you meet most often at established FMCG companies is the one the tool opens on: Healthy / Healthy / Moderate / Aligned, which you can defend today and can still improve without spending another cent.

The habit worth building before a JBP: run the tool twice, once on the contract you have and once on the renewal they are proposing, then put both sets of diagnostics side by side. Any band that gets worse belongs in the brief. A band crossing into Locked while total spend stays flat is one to escalate, because the proposal has cost you the right to change that money later and bought nothing with it. And turn every request the buyer makes into annual dollars, using what one realization point is worth, because a request nobody has put into dollars usually gets approved without a fight.

5.55 common mistakes to avoid

Diagnostic patterns that catch the most common misuse of this calculator.

  1. Mistake 1Managing the headline trade‑spend rate without breaking it into families
    Symptom: The team reports 'trade spend about 23% of gross' for three years, while underneath it the promotional family grows by two points and the structural base drifts up by one. The headline held because volume grew; the structure deteriorated the whole time.
    Fix: Run the bridge per family, per top customer, at least quarterly. A total that holds still while the mix of families underneath it moves is a different position reporting the same number. The families tell you what the money buys; the total on its own does not. The per‑family annual table exists precisely because the negotiation is about families.
  2. Mistake 2Treating 'off‑invoice' as a synonym for 'conditional'
    Symptom: A renewal deck claims '4 points moved off‑invoice, conditionality improved.' A year later the money pays out in full despite missed targets, because the off‑invoice line never had a measurable counterpart: it was unconditional money settled by credit note.
    Fix: Placement and conditionality are separate questions. Off‑invoice makes conditionality POSSIBLE, never automatic: the term still needs a specific, measured, withholdable counterpart. When you move money between families, move it into Performance with a real trigger attached, meaning something measurable the retailer has to deliver before the money is paid. Moving it 'off‑invoice' in general, with nothing attached, leaves you exactly where you were.
  3. Mistake 3Accepting an on‑invoice 'simplification' without pricing the flexibility loss
    Symptom: A buyer proposes moving conditional money on‑invoice 'to simplify the relationship.' It sounds administrative, total terms do not change, and the account manager signs. On‑invoice share crosses 50 into Locked, and when the next buyer arrives, any attempt to rebuild the deal lands on their desk as a price increase.
    Fix: Before you answer any proposal to move money onto or off the invoice, work out what it costs you in points of On‑invoice share. The placement sliders exist so you can rehearse exactly this: move the family, watch On‑invoice share, and then name the point where it crosses into Locked out loud in the meeting. Moving a family between the invoice and a later rebate is the concession that costs you nothing, but only while On‑invoice share stays out of Locked.
  4. Mistake 4Reading realization without the retailer's side
    Symptom: Realization holds Healthy for three years while the retailer's margin position climbs from the corridor's middle to well above it. The CFO asks why the account's margin on the brand now runs far above the category norm, and nobody can name what the excess buys.
    Fix: Read the dual ledger every cycle: your realization AND their margin position. If their margin position climbs while your realization holds steady, the extra margin is arriving from somewhere else in the relationship, such as a shelf price move or a change in their costs. It changes where the next negotiation starts, whether or not your own terms moved.
  5. Mistake 5Conceding a new term without the opportunity‑cost test
    Symptom: A customer asks for one more point 'to fund category development.' Sales accepts because it is only a point, and the volume commitment sounds generous. A year later volume landed and operating profit still fell, because the point cost more than the incremental volume contributed.
    Fix: Turn every ask into dollars using the value of one realization point, then measure it against the alternative. A trade point you will not get back has to earn back more than the point itself, every year it stays conceded. The benchmark says what that point means on an average‑margin company: a 1% price improvement lifts operating profit by about 11 percent. Bring the tool's current‑versus‑proposed diagnostic stacks to the meeting so the trade‑off is visible on both sides of the table.
Related concepts

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This calculator is the sandbox slice of Lesson 2: Gross-to-Net & Value Split. Each of the other 5 Trade Terms lessons teaches a complementary concept that sharpens how you read the output above.

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