Depletion Allowance
A depletion allowance is the cleanest lever a brand has on shelf price. It is also the easiest one to give away more of than the volume is worth.
A depletion allowance is supplier money paid to the distributor on cases depleted — cases sold out of the distributor's warehouse to retail accounts, not cases sitting in it. It is usually quoted per case, and it reduces the effective FOB dollar for dollar, which means it reduces the distributor's laid-in cost by the same amount.
Because it attaches to depletions rather than purchases, it funds movement instead of funding inventory. That is the argument for using it over a straight frontline price cut: you are paying for cases that actually left the building, and you can turn it off again without having renegotiated your published FOB.
The useful direction is backwards. You know the promoted shelf price the account wants to run. Hold the retailer's margin and the distributor's margin where they normally sit, work back down to the laid-in cost the deal requires, and the gap between your current laid-in and that number is the allowance — exactly, not approximately.
That is what Ruby Pro's price sheet builder does when you type a promoted price into the on-sale column. It re-solves the allowance for that column at the same margins and shows what the promotion does to your supplier margin in the same view, so the trade-off is visible at the moment you are deciding it.
The allowance on the promoted price is not what the promotion costs you. What it costs you depends on how much of the business actually runs on deal. A brand at 70% everyday and 30% on-sale pays the allowance on 30% of its volume, and the number that matters to the P&L is the weighted average across both.
Quoting yourself the on-deal margin and forgetting the mix is how a brand talks itself into a promotion calendar it cannot fund. Quoting yourself the everyday margin and forgetting the deal is how it gets surprised at the end of the quarter. The weighted column is the honest one.
Florida Chardonnay, FOB $115.95, laid-in $129.30, COGS $52, everyday shelf $19.99. The chain wants a $17.99 promoted price with the same 30% margins on both tiers.
Start with the everyday price, because it already carries an allowance. At $19.99 the case cost to trade is $167.92, so the distributor needs laid-in at $117.54 — against an actual $129.30. That gap is an allowance of $11.76 a case before anyone has run a promotion, pulling effective FOB to $104.19 and supplier margin to 50.1%.
Now the promotion. At $17.99 the case cost to trade is $151.12 and the distributor needs laid-in at $105.78, so the allowance is $129.30 − $105.78 = $23.52 a case. Effective FOB falls to $92.43 and supplier margin to 43.7%.
The promotion costs you the difference, $11.76 a case, on whatever share of volume runs on deal. At a 70/30 mix the weighted supplier margin is 48.2% — a 1.9 point give against the everyday price, not the 6.4 points the promoted column alone suggests. That is the number to take into the conversation.
Supplier money paid to a distributor on cases depleted to retail accounts, normally quoted per case. It lowers the effective FOB and the distributor's laid-in cost dollar for dollar, which is how it moves shelf price without changing your published frontline price.
A depletion allowance is typically accrued and settled against depletion reporting, while a bill-back is invoiced after the fact against documented performance. The pricing math is the same — both reduce effective FOB — but the timing, the paperwork and the audit trail differ, and so does how quickly it hits your margin.
They cost different amounts for the same shelf movement. An allowance is cash off the case; free goods cost you COGS on the free cases and nothing else. Free goods are often cheaper per dollar of shelf impact, but they are more heavily regulated and not permitted everywhere. Our free goods calculator prices a free-goods offer as an equivalent percentage off FOB so you can compare the two on the same terms.
Work backwards from the promoted shelf price at the margins the tiers actually hold, down to the laid-in cost the deal requires. The gap between your current laid-in and that figure is the allowance. The price sheet builder solves it for you when you type the promoted price into the on-sale column.
Planning estimate only — not tax or legal advice. State excise is applied from a maintained reference table and flagged where a rate is flat or a jurisdiction is control. Verify the excise class for your product and market, and confirm final figures with your distributor.