Volume rebates are used by 90% of distributors, making them one of the most popular types of rebate programs in use today. It’s easy to see why: they are an efficient and relatively simple form of rebate program that can significantly impact sales, purchase volumes, profit margins, market share, brand awareness, customer loyalty and more. Simply put: when it comes to designing strategic deals to drive sales, it’s tough to beat volume rebates.
Today, we’ll explore volume rebates: what they are, how businesses use them and the critical strategic role they play in driving sales.
What Are Volume Rebates?
Like all rebates, volume rebates involve a customer earning money back in a B2B transaction. What makes volume rebates unique is their tiered structure.
When creating volume rebates, suppliers set threshold targets for customers to meet, each with a progressively higher rebate rate. Customers can then earn a larger rebate by purchasing more of a specified product (or product range) to reach those targets.
For example, a tiered volume rebate program might specify that any purchase over 5,000 units will earn a 5% rebate, while any purchase over 10,000 units will earn a 10% rebate and so on. If the rebate is retrospective, the highest rebate rate earned (10% in this case) will apply to the entire purchase. If it is non-retrospective, the 10% rate will only apply to units purchased over the 10,000 mark, while all units below that mark will only earn the 5% rebate rate for that tier – essentially restricting each rate to its own tier.
Why Do Businesses Use Volume Rebates?
Businesses use volume rebates for many reasons. Suppliers often employ volume rebates to motivate customers to purchase greater volumes of their products, leveraging economies of scale to offer better pricing. This allows suppliers to boost their market share and brand awareness as more of their products are being traded.
Meanwhile, distributors and retailers on the other end of the deal benefit from lower costs on specified products, which can have a significant impact on a company’s profit margins. Merchants may also opt to pass these discounts on to the end customer while maintaining their regular profit margin, resulting in cheaper prices for the end customer – and more sales for the merchant. This is why large supermarkets are frequently able to offer popular products from established brands at lower prices than their rivals.
While the essential strategic purpose of volume rebates is to boost sales, the benefits extend far beyond this simple goal. These are just a few of the ways that volume rebates can drive business, save money and build stronger trading relationships for suppliers, buyers and end customers.
Using Volume Rebates to Drive Sales
Many businesses employ volume rebates as a means of boosting sales. By structuring these deals around tiered purchase thresholds, customers are encouraged to make larger purchases. This approach has the potential to impact buyers’ decision-making processes at both a small and large scale. Whether you’re a major enterprise striving to secure the maximum achievable rebate rate for a bulk purchase or a smaller business contemplating the purchase of a few more units to qualify for the next tier, customers are always aiming to optimize their cost savings.
Volume rebates can be used to drive sales towards a number of specific goals. Are you looking to augment a new product launch, boost an underperforming product, increase your customer base or gain a foothold in new markets? By offering compelling incentives for increased purchase volume, volume rebates can effectively drive sales towards diverse strategic goals.
The design of your volume rebate programs impacts their ability to drive sales. Some types of volume rebates are better for certain situations than others, making it critical that you understand how to shape these deals to your needs. For example, retrospective volume rebates are typically more attractive to customers and more beneficial to suppliers, as customers are incentivized to reach the highest tier possible for the greatest return. However, while non-retrospective deals are less effective at turning small sales into large sales, they can motivate customers who are already buying in bulk to increase their rebate amount by purchasing more units within a higher tier.
Managing Volume Rebates and Other Complex Trading Programs
The strategic potential of volume rebates is directly related to your team’s ability to wield them. In fact, proper management of rebates can significantly enhance the strategic potential of your volume rebate deals. If your team is bogged down with tedious manual tasks, they may not have the time or perspective necessary to leverage volume rebates effectively.
While volume rebates are not as complicated as some types of rebate programs, they still involve a higher level of complexity than most legacy systems (such as spreadsheets and ERPs) are built to handle. These inflexible systems cannot capture the intricate details of your deal terms and require most of the administrative burden to be carried by hand.
When it comes to managing your volume rebates, you need a system that adequately supports these complex processes. The most effective way to track, analyze and report on your volume rebates is with a dedicated rebate management software. Not only can rebate teams save time and effort with automated features, but with greater performance insights, data transparency and streamlined processes, businesses have the tools to build better volume rebate programs and stronger trading relationships.
Brush up on your volume rebate basics in our blog. For a deep dive into volume rebates, download our 2022 State of Volume Rebates reports for distributors and manufacturers.
