When a supplier is doing business with a retailer, there are usually two main aspects:

The first part is all about supply chain and costs. This is more the bottom line.

That second part is all about sales. That's the top line.

Target contracts, also called Target Vendor Income (TVI) or simply Vendor Income (VI), come into play here by trying to influence and increase sales. We'll mostly refer to it as contracts here. Worth nothing that TVI is also the name of the POL app used to manage contracts.

Sometimes referred to as trade, trade spend, brand spend, marketing expenses, or in Target's case, vendor income, it's all about activities taken once the retailer already has products to sell. They're trying to sell more and also improve the profit on the products they have to sell. And who is the retailer asking for help to fund these additional levers to try and increase sales or make things more profitable? You guessed it: the supplier.

You'll hear the word margin a lot in relation to contracts or trade. This refers to the gap between how much Target paid for an item and how much they can sell it for. The wider the gap, the better the margin, the more profit the retailer makes, the more they want to re-buy more of that item from their supplier.

For example, if the retailer bought an item from their supplier for $2.00 and sell it for $3.00 in a store, that's a $1.00 profit, or 50% profit margin.

If they can work with the vendor to provide funding to bring down or offset the cost of the item or more cheaply promote an item to get it in front of shoppers, they can potentially sell more and get more profit. Maybe that 50% profit margin can move up to 51% or 52%. Or with marketing expenses factored in, instead of the margin being reduced to 45%, maybe it's only reduced to 48% through the contract activities which the vendor is partially or fully funding. On a single item, that change may not be much, but across the thousands and thousands of items in a single Target store and across the ~1,900 Target stores in the U.S., those incremental gains can add up to big dollars for the retailer and for the continued business the retailer buys from their suppliers.

And why the word contract specifically for Target? Because it's a document signed by both parties, the retailer and the supplier, that clearly outlines the items at play, the time frame for activities being tracked, the vehicle for the trade (more on this in a moment), any calculations involved for contracts that involve sales or promotional activity, and specific stores or outlets if relevant.

If you're not sure where to find contracts in Partners Online, check out this page.

A vehicle is the key functional activity happening that the contract is being written to track. This could be things like paying for placement in a circular ad, something as specific as a margin guarantee for certain items during a competitive period, or offsetting the cost of returned or marked down products (What are Markdowns?). There are about 24 different vehicles (support articles here).

It depends on the vehicle and any calculations involved in the contract. Target generally has decent support here if you use the TVI Reports in Greenfield (Target's business intelligence tool in POL), you can see the item level rollup for everything that is adding up to the total for each deduction related to a contract.

Set $ Amount calculation contracts shouldn't have any real calculations. The $ amount for the contract and its deductions is known from the beginning.

A contract that has a calculation for D Markdowns and an Allowance % will have a set %, say 6%, that will be multiplied by the D Markdown $s for the contract items during the contract time period at the contract outlets/stores. You can see this in the TVI Reports in Greenfield.

It's worth knowing that a contract can be for a single day or up to a year for most of the longest ones. And they can be assessed at the beginning of the contract, the end of the contract, weekly, monthly, or quarterly. So a year long contract assessed quarterly would have 4 deductions. These are relatively common. A year long contract assessed weekly could have up to 52 deductions. That scenario is more uncommon.