🎙 EPISODE 305 — The Deduction Prevention System: How to Stop Losing Money Before It Leaves Your Account

You’re Not Losing Money Because You’re Failing. You’re Losing Money Because the System Is Designed to Take It From You (Unless You Know How to Prevent It).

If there’s one area that consistently blindsides founders, it’s deductions.
You know the feeling:
- A check comes in far lower than expected
- A long list of “adjustments” with vague codes
- Charges you’ve never heard of
- Promotions billed incorrectly
- Freight charges that don’t match agreements
- “Admin fees” that appear from nowhere
- “Compliance penalties” that feel arbitrary
- “Short shipments” you know were never short
- Chargebacks for promotions you didn’t authorize
- Claims that sit unresolved for months
Deductions are stressful, confusing, and expensive.

But here’s the truth almost nobody in the industry will say clearly:
👉 Most deductions are not “problems.”
They are symptoms — of missing systems.

And even more importantly:
👉 Most deductions are 100% preventable.
Founders think deductions happen after the sale.

But the smartest brands know:
Deductions begin months earlier — in your systems, your paperwork, your pricing architecture, your promotion agreements, your forecasting, your communication, and your execution.

This isn’t a small brand problem. Big brands struggle with this as well. Early in my career while working for Unilever, one of the largest companies on the planet at the time. I spent countless hours chasing and working to resolve deductions. My boss said that I was paid to sell and told me to ignore the deductions. They were already factored in as a cost of doing business. I then learned that some third part companies that manage deductions for retailers are incentivized on what they collect knowing that some brands will pay even if the deduction is invalid. Let that sink in a moment.

Incase your thinking that you’ve got this covered because you pay someone to manage your deductions, think again. That is an expense you could avoid if the deduction never occurs. That is cash flow that you loose control of until the deduction is resolved. The people managing your deductions will also struggle same as you. This is true even if they use AI.

Today I’m going to show you how to build a Deduction Prevention System that stops margin leakage before it starts. Promotions magnify this problem but deductions also happen in the absence of promotions.

But first, let me share the story that taught me — in painful detail — why prevention is the only real solution.

THE STORY — The Brand That Paid $42,000 in Deductions They Didn’t Owe… But Couldn’t Prove

A founder called me after receiving a deduction statement that made her sick.

They were billed:
- for promotions they didn’t authorize
- for discounts deeper than the agreement
- for back-end fees never discussed
- for freight discrepancies
- for “late delivery” penalties on shipments delivered early
Total: $42,000.

She thought:
“This must be wrong. I’ll dispute it.”

But she couldn’t.
Why?

Because:
- The promotion agreements were incomplete.
- Emails weren’t saved.
- No formal approval trail existed.
- SKUs weren’t clearly listed and some were missing.
- Pricing floors weren’t documented.
- Distributor communication wasn’t centralized.
- Forecasts didn’t align with orders.
- Their broker didn’t have a scorecard to manage the promotion.
- No deduction tracker existed.

So even though she was right…
she couldn’t prove she was right.

Retailers and distributors defaulted to:
“Without proper documentation, the deduction stands.”

And the louder you scream, the more it damages your relationship with the retailer. The same relationship you’ve been working hard to cultivate.

Once we implemented a Deduction Prevention System:
- retailer deductions dropped 40%
- distributor deductions dropped 60%
- promo deductions dropped 70%
- and her cashflow stabilized
- She had the funds to innovate and build her brand
This episode will give you that same system.

WHY DEDUCTIONS HAPPEN
This is part of the New Item Essentials system

Most deductions come from five places:
1. Sloppy or incomplete promotion agreements
2. Incorrect pricing and vague promotion and allowance dates
3. Poor forecasting and inconsistent shipments leading to out-of-stocks
4. Misaligned communication between brand, broker, distributor, and the retailer
5. Lack of documentation and preventive audits

Deductions are the result of operational drift —
not “bad luck.”

Your Deduction Prevention System MUST integrate:
1. your pricing architecture. When the promoted price begins and ends - the specific dates.
2. your promotion architecture including when the retailer should build inventory to support the promotion by individual store. Each store needs need to be properly forecasted for the duration of of the promotion
3. your promotion scorecards detailing who is responsible for exactly what and when. This must include all relevant communications. This includes all merchandising, who is responsible for what, when it will be executed.
4. ow the promotion will be tracked. Always pay on scan - exactly what scans through the register during the promotion window.
5. What happens to the excess inventory at the end of the promotion. How will it be managed and/or returned. When you forecast accurately, you dramatically reduce any overstock. That efficiency results in significant cost savings. We’ll go deeper into that on a future podcast.
6. your Pre-Store checklist. Communicate any and all relevant information. For example, when the store can expect your merchandiser, where the specific shipper will be when the merchandiser comes in, where it will be placed in every store, who is responsible for keeping is stocked and the it will be removed. If you are shipping additional product to a store, make certain each store expects it including the receiving manager. You do not want any shipments denied. Don’t overlook anything.
7. your KPIs. Exactly what are guardrails for each individual promotion. This needs to be spelled out in detail. Doing this right insures flawless execution at every store. Detailed KPI’s should be created and given to everyone in your sales funnel. I go into KPIs more on other podcasts.

Any missed or vague steps can result in deductions. All of these live inside the New Item Essentials framework and in this weeks free download at the end of the episode.

The best way to manage deductions is to prevent and minimize them through flawless execution.

When they’re aligned, deductions shrink dramatically.

Let’s walk through the five pillars of your Deduction Prevention System.

STRATEGY #1: Build Ironclad Promotion Agreements

“Deductions Aren’t Random. They’re Systemic.”
“You’re not losing money because you failed — you’re losing it because of missing systems.”

This is the single greatest cause of unnecessary deductions in early-stage brands.

Retailers assume:
“If it’s not in writing, it doesn’t exist.”

You must treat every promotion agreement like a legal document.

Your agreements must include:
- exact start & end dates
- SKU-level specificity
- promotion depth by UPC
expected case counts - what do you expect to sell during the event and after
- display requirements by store
- execution expectations - every step in the process
- signage requirements
- back stock expectations to be received by every individual store
- who pays for what
- what happens when Out Of Stocks occurs - how you plan to manage them and your comment to the retailer and how you plan to communicate any issues
- pricing integrity requirements
- terms for unauthorized deductions
- A way to organize all promotional communications and documentation

If any of this is missing?
You will get deductions you cannot dispute.

Action Step This Week
Audit your last 6 promotions.
Check for:
- missing details
- assumptions
- vague language
- incomplete SKUs
- missing signatures
You will immediately see patterns of preventable deductions.

STRATEGY #2: Control Pricing Integrity Across Every System

“Pricing Drift: The Silent Margin Killer.”
“If you don’t audit quarterly, your pricing is already wrong.”

One of the silent killers of margin is pricing drift.

Most founders don’t know:
- distributors and retailers often maintain multiple pricing tables
- promotional pricing sometimes overwrites base pricing
- old pricing gets reactivated accidentally
- regional warehouses use different pricing
- pack size changes break pricing logic
- cost updates don’t sync across platforms
- Pricing can sometimes vary dramatically by sore

Promoted pricing doesn’t always get turned on and off as expected in your agreements

This creates:
- incorrect invoices
- incorrect retailer charges
- incorrect promo billing
- cascading deductions

Pricing integrity must be part of your prevention system.
Your system must include:
- quarterly pricing audits
- written confirmation of all updates
- cross-checks across all warehouses
- pricing floors
- Retailer and distributor scorecard pricing KPIs

Action Step This Week
Pull 3 months of invoices from EACH distributor warehouse and retailer.
Look for:
1. mismatched pricing
2. mismatched pack sizes
3. unexplained variability
You’ll be shocked what you find.

Using this exact playbook I was able to renegotiate menu fees with a national retailer.

STRATEGY #3: Forecast With Enough Precision to Prevent “Operational Deductions”

“Forecasting Prevents Deductions.”
“Most warehouse and retailer penalties come from predictable forecasting errors.”

Operational deductions include:
- short shipments
- late shipments
- backorders
- substitutions
spoilage - product not being rotated properly or stored properly
warehouse penalties
- “unable to fill” penalties

These aren’t retailer deductions.

These are system deductions caused by:
- poor forecasting
- poor communication
- production variability
- seasonal swings
- mismatched inventory builds

Forecasting is not guesswork.
Forecasting is margin protection.

Your model must include:
- baseline velocity
- ACV by item and retailer
- seasonality
- promo lift
- distributor threshold logic
- lead times
- production capacity
- real-time adjustments
- And most important, how shoppers buy your products

Action Step This Week
Forecast the next 90 days using:
1. expected distribution
2. expected promo lift
3. expected back stock needs by individual store
Share it proactively with your distributor AND broker.

You will prevent dozens of future deductions.
This will also reduce out-of-stocks and frustrated shoppers

STRATEGY #4: Use Scorecards to Create Accountability (And Documentation)

“Your Promotion Forms Are Costing You Thousands.”
“Incomplete agreements = deductions you cannot dispute.”

Scorecards centralize:
- agreements
- responsibilities
- deadlines
- metrics
— performance
- discrepancies
- communication

They become your proof when deductions arise.

Your scorecard should track:
- pricing accuracy
- promo execution
- order fill rate
- Out Of stock rate rates
- voids
- deduction frequency
- lead time compliance
- communication timeline

Why This Works
Distributors and brokers behave differently when they know performance is being documented monthly. This also helps you build trust with your retailer partners.

Action Step This Week
Add a “deduction prevention” column to your existing scorecard.
This makes drift visible — before it becomes expensive.

STRATEGY #5: Centralize All Documentation — If You Can’t Prove It, You Can’t Recover It

“If You Can’t Prove It, You Can’t Keep Your Money.”
“Documentation is your strongest deduction prevention tool.”

The most preventable deduction losses occur because the brand has no organized documentation.

You need a central repository for:
- promotion agreements
- pricing agreements
- email confirmations
- audits
- forecasts
- delivery confirmations
- deduction disputes
- settlement tracking

Anything else that is tied to your daily sales as well as your promotions.

Why This Works
Deductions become easy to dispute when:
- your documentation is complete
- your dates are clear
- your agreements are unambiguous
- your scorecard aligns with the dispute
- your emails support your claim
Your have supporting documentation for every step in the process - clarity and accuracy matters

Retailers and distributors respond to clarity.

Action Step This Week
Create a shared folder called:
“Deduction Prevention Hub”

Add subfolders for:
- pricing
- promotions
- deductions
- distributor communication
- audits
- forecasts
- Everything goes there.
This creates the “paper trail” that wins disputes.

🔁 RECAP — THE DEDUCTION PREVENTION SYSTEM

To stop margin loss, you must integrate:
1. Ironclad promotion agreements
2. Pricing integrity across all systems
3. Forecasting as margin protection
4. Scorecards for accountability
5. Centralized documentation and audit systems

When you master these five disciplines:
- deductions shrink
- cashflow stabilizes
- retailer trust improves
- distributor drift decreases
- promo ROI increases
- forecasting becomes accurate
- margin becomes predictable
- your entire business becomes calmer

Your goal is NOT to fight deductions.
👉 Your goal is to prevent them from ever happening.

This is how big brands do it.
And now you have that same advantage.

In CLOSING
To help you go deeper into Effective Deduction Management, this weeks free guide by the same name and the show notes on the podcast webpage. Listen to the end to learn how to get it instantly. There is also a link in it to a course by the same name should you need additional help. This is part of the New Item Essential System.

Next week we’ll help you prepare to maximize your time at Expo West. Trade shows are expensive but there are simple things you can do to maximize your ROI and make the important connections to support you well into the future.

Until then:
- subscribe and follow the show
- visit RetailSolved.com for more brands building tools and advice.
- connect with me on LinkedIn
- share this with a founder drowning in deductions
and send me the last deduction statement you received — I’ll tell you what to do to avoid that in the future

Deductions don’t need to drain your runway.
Your systems can stop them before they start.