Businesses that make use of rebates as part of their incentive strategy know how useful these complex deals can be – but not all businesses are making full (or any) use of these benefits. The reason why is understandable: many businesses are hesitant to introduce new responsibilities and points of complexity into their operations for fear of putting an additional burden on their busy teams.
However, many of the concerns that hold companies back from leveraging rebates are rooted in common misconceptions stemming from the inconveniences of traditional forms of rebate management. Massive spreadsheets, endless email chains and messy ERPs are the stuff of rebate accountants’ nightmares, contributing to a deceptive reputation for these deals that – when managed effectively – can bring a host of benefits to your business with very little added burden to your teams.
Today, we’ll be exploring the ins and outs of rebates: what they are, their strategic potential and benefits, as well as how you can make fuller use of rebates without the extra work.
What Are Rebates?
Rebates are a retroactive pricing incentive in which a portion of a customer’s purchase price is returned to them after the sale is complete. This marks a crucial distinction between rebates and their more common counterparts, discounts: whereas a discount reduces the price before the purchase, rebates effectively reduce the price after the purchase. There are several benefits to structuring the incentive in this way:
- Avoids negative branding connotations associated with discounts or price-cuts
- Builds greater alignment, trust and synergy between trading partners
- Can be targeted to avoid disrupting the rest of your channel
- Rebates are more memorable and involved – as one of our customers put it, “Discounts are given; rebates are earned.”
The Strategic Potential of Rebates
Rebates have great strategic potential for businesses that know how to wield them and employ the right tools to do so. Rebates hold unique benefits for each business involved in the deal, from the manufacturer offering the rebate to the distributor claiming it:
Rebates can help manufacturers…
- Increase volume and consistency of sales
While there are many types of rebates with a wide range of purposes, some of the most common rebates are designed to incentivize larger or more frequent purchases. Rebates specify certain targets or qualifications that must be met before a customer can claim the rebate. If you’re looking to increase sales of certain SKUs, you can design a rebate that rewards customers for purchasing a profitable amount of your products with a retroactive discount.
- Drive customer loyalty and retention
When manufacturers offer customers a rebate – an exclusive deal they can’t get anywhere else – they’re likely to stick around and make full use of the strategic advantage. The strongest trading relationships are those based on mutual benefit and synergistic collaboration. With rebates, businesses are working together towards a set of clear goals that are in alignment with each other, incentivizing both businesses to avoid conflict and hold up their end of the bargain.
What most people may think of as the whole that rebates have to offer is really just a small piece of the rebate pie. The benefits of rebates don’t stop at boosting sales, margins and customer loyalty (though they are exceptionally good at doing so). The flexibility of rebate programs allows you to choose the type that suits your needs and tailor the specifics to your business’s individual goals.
Learn how to wield the many different types of rebates in our whitepaper, Understanding Which Incentive Type is Right For Your Business.
For Distributors, Vendors and Retailers
Rebates can help distributors…
Distributors are often in the position of the customer, receiving the most direct benefits of rebates: the boost to profit margins. While the price they pay for the rebated product is lowered, the price they sell it for remains the same, allowing them to make more money on each product. However, unlike a discount, a rebate requires a distributor to actually commit to and go through with the purchase to receive this benefit.
Businesses are always looking for ways to increase their ROI, to make better use of what they have and what they need. For budget-savvy procurement managers, rebates can play a pivotal role in key decision-making processes; in the most critical cases, a strong rebate program can make the difference between a partner choosing to increase order sizes or sever your trading relationship. With a margin boosted and assured by a rebate, a distributors’ ROI on the products they purchase is maximized, allowing them to price products for resale more strategically instead of pricing based on necessity.
- Build strong strategic relationships
Rebates offer distributors same benefits of a discount (that is, reducing the purchase price) while maintaining a much-needed level of assurance and control for the manufacturer taking a risk on the deal. That way, the deal’s synergistic benefit to both parties is ensured. An effective and seamless rebate experience can form the foundations for a strong and long-lasting trading relationship, opening the door for further opportunities in the future.
To get the full picture on how rebates benefit distributors, download our whitepaper.
Making Full Use of Rebates (Without the Burden)
Rebates have so much potential that is going untapped by businesses that either don’t understand rebates or mistakenly believe them to be more trouble than they’re worth.
Like any task, managing rebates effectively is all about using the right tools for the job. A cross-country trip can technically be completed on a bicycle, but it will take much more work and time than making the same trip in a car or plane. This is where far too many businesses find themselves with inefficient rebate management processes: struggling to bike all the way to the border using spreadsheets and ERPs. Not using any form of software – attempting to manage rebates only through email chains and paper records – is akin to making the trip on foot. Meanwhile, the teams that choose the right tools for the job, such as an automated rebate management software, are soaring overhead – staying ahead of the curve in style and comfort.
With rebate management software, you can turn your rebates from a necessary evil into an engine for growth by:
- Automating time-consuming processes, from calculation to reporting
- Accessing better insights and improved forecasting
- Avoiding costly complexities, obstacles and human errors
- Gaining a stronger vantage point to improve your rebate strategy
We’ve barely scratched the surface of the true strategic potential that rebates hold for your business. Learn more in our whitepaper, Driving Loyalty and Revenue with Rebates.