To understand rebate management, it is good to first define what a rebate is. Rebates are promotions or incentives that encourage customers and channel partners to sell more of a product. So rebate management, simply put, is the process used to record how rebates apply to different customers and products. When done well, it can drive a lot of value for an organization.
With effective rebate management, it becomes easier to see how purchases and sales are tracked against agreements. The rebate management system then supplies the information needed to manage and track accruals which can then be claimed.
Rebates are different from discounts. Rebates are often used instead of discounts, as rebates are enormously helpful in boosting customer loyalty and retention. Unlike sales and other discounts, rebates tend to run over periods of time. There are many types of rebates, most commonly retention, flat, volume, value, growth, revenue, and a mix of multiple types.
Sales and channel and direct customers can be incentivized to spend more money, sell higher quantities of your products, or return more frequently to use your services. A one-off discount does not have the same effect, which is why many companies are now turning to rebate arrangements in favor of other sales and promotions.
Rebates are important for pricing teams too. They can be used to protect the price of a product when it is being sold at a lower amount or needs to be presented in the market at a certain price point. As with discounts, rebates can be used to pass savings on to the end buyer or customer.
Rebate management isn’t always simple, however, and many organizations struggle because of a reliance on legacy systems, managing many spreadsheets, and slow, manual processes – all of which make it difficult to introduce rebate systems that are fast, reliable, and allow for greater trust between you and your channel. The key to rebate management lies in establishing good alignment and visibility – something that is only really possible with the right rebate management software in place.
What is a Rebate?
Before delving into the best practices for rebate management, it’s worth first recapping the basics. Price rebates come in several different forms but, when managed well, deliver increased sales, customer retention and loyalty without compromising on the desired price of a product.
There are two main types of rebate: incentive rebates and channel management rebates.
Incentive rebates include volume, growth, retention and mixed rebates. Channel management rebates work a little differently. These include rebates like ship and debit, indirect customer rebates and price masking rebates.
Regardless of the type of rebate employed, the basic principle remains. Instead of granting an upfront discount, rebates are used to price on the actual volume purchased, thus reducing the risk of customers over-promising on volumes. In other words, the impetus is on buyers to ensure they receive the lowest prices for their purchases – and this brings a whole host of benefits.
Why Are Rebates Important?
Boiled down to the essentials, rebates are helpful as they provide direct incentives for customers to spend more every time they order from you. They also influence customers to return to a business more frequently (and try out more products).
Looking more specifically, rebates allow volume commitments to be enforced more easily, which is particularly beneficial for B2B organizations where frequent, repeat orders from a smaller customer base contribute a larger portion of the bottom line.
In terms of pricing, rebate strategies enable brands to offer personalized incentives to individual customers, and avoid deflating prices overall. For manufacturers in particular, rebates can also help with managing inventory levels across distributors.
Incentive programs are hugely advantageous for selling teams too, helping to equip team members with greater power to close deals successfully. Sales teams can also use such programs to align incentives, enforce commitments, offer controlled concessions and differentiate their service from that of their competitors.
What Are Customer Rebates?
Customer rebates are a form of channel management rebate. In this rebate, customers are paid back a proportion of the sum they spent with a company. Customer rebates can be used by businesses selling products or services and they’re common throughout many sectors.
What Are Vendor Rebates?
Vendor rebates are a form of rebate in which payments are made by a vendor. In this rebate, vendors pay back a sum of money to either a distributor or a merchant. A vendor rebate is also commonly referred to as a supplier rebate.
How Do Supplier Rebates Work?
When companies choose to use supplier rebates, they typically offer their customers a percentage of their spend back over a predetermined period of time. This helps suppliers to entice customers to spend with them every time they need to purchase goods. It also makes it easier for distributors to control income.
Volume rebate: Sellers offer tiered pricing with a fixed invoice price. The actual price varies with volume and the difference is granted by rebate.
Growth rebate: A variation of volume rebates, where rebates are provided under the condition that the sum is paid on incremental volume, rather than on all revenue or total volume.
Retention rebate: Rebates paid to reward continued business or customer loyalty. These can combine volume, mix, and growth but are usually end of the year or “cliff” rebates.
Mix rebate: Sellers use a mixture of rebates to encourage distributors to sell additional volume or a larger mix or margin products to end-users or chosen segments.
Price masking rebate: Also often referred to as shelter upcharges, price masking rebates are designed to allow invoicing at an artificially high price. This allows businesses to keep their ‘real’ price visible in the marketplace.
Ready to Unlock Growth, Revenue and Profitability in Your Business?
Our experts are eager to guide you through our discovery process and get you started.
While the potential of rebates has surged in recent years, so too has the complexity of rebate management.
It’s now enormously difficult to manage rebate programs manually. It’s also a huge waste of time and energy for the team members responsible. Without careful rebate management, rebates can become a burden that hinders more than helps. The result is increased administrative costs and price leakages.
Rebate management makes it easier to manage different rebate programs, allowing businesses to get the full benefit of all rebates that they offer their customers. With rebate management, margin leaks can be eliminated just by paying close attention to the data. And of course, automation means a greatly reduced risk of human errors – along with huge improvements in administration and efficiency.
Common Rebate Management Challenges
Rebate management isn’t without its challenges.
Some of the most common issues in rebate management include the lack of visibility that companies face when introducing these processes. Businesses reliant on legacy systems struggle to access the benefits of rebates. In such scenarios, the effect of incentives cannot be easily measured and incorrect prices can easily be quoted, leading to price leaks.
Administering incentives is difficult if there is no system in place to track compliance with rebate terms. Businesses hoping to benefit from rebate management need a reliable way of tracking information like order volumes.
What is a Rebate Management System?
A rebate management system makes introducing rebates simple.
Businesses can easily access the incredible benefits of different rebate options using a rebate management system, and teams won’t need to spend huge amounts of time pouring over data to start making the most of their chosen rebate options.
A rebate management system enables companies to automate the entire rebate and channel process, thereby minimizing the amount of work that must be done manually, and the chance of any human errors that would result from that.
From deal creation to accruals to payment generation and reconciliations to end-to-end reporting, rebate management systems provide a wealth of options to companies.
As with most things, there is no single solution for managing rebates effectively. That said, there are a few golden rules to follow.
Establish your set of rules: Define your rebate strategy before you dive in, ensuring that all team members are on the same page and fully decided on what you’re hoping to achieve.
Segment your customer base: Create segments to make the most of different rebate options. This will allow you to use rebate types and incentive templates in the most effective ways, for different customer groups.
Use data to your advantage: Make the most of the information you have, using it to better inform your rebate strategies. Make use of historic customer and purchase analytics to develop more detailed customer segments.
Align complexity and value: Don’t lose sight of the goals of your rebate strategy. Remember that increased complexity might deliver great results, but the time spent on rebate management could mean that any benefits delivered are negligible overall. Balance complexity and value to avoid any unexpected downsides to your rebate programs.
Automate: Many of the most common challenges of rebate management can easily be overcome with the introduction of automation. Explore automation options to access the most efficient and profitable rebate management options.