How to set-up a rebate program

Purchasing decisions must factor in two important elements: the first is how to increase customer loyalty while maximizing profit margins. The second is negotiating the best pricing agreement with suppliers. Achieving this balance is the underpinning of an effective rebates program.

Having the ability to account for every dollar is critical when profit margins are tight, yet rebate programs can be complex and difficult to track. This blog explains how to simplify the process of managing rebate agreements across your business.

What is a rebate?

A rebate is different from of discount. A discount is a price reduction that is applied at the time of sale. A rebate amount is a refund of the purchase price that is applied after the sale is complete. A rebate strategy is intended to promote specific products or incentivize and reward customers who purchase more by offering them better margins. As such, it is typically limited to a specified period of time and only for orders that satisfy a baseline value or quantity requirement. Rebate claims are considered price adjustments rather than taxable income. Some financial experts believe that a rebate management program is a best practice in pricing.

Who uses rebates?

Manufacturers, retailers and buying groups typically offer rebate deals to drive the sale of certain products, as well as to offer value to customers. B2B rebate programs have evolved from an effort to increase sales quickly to a long-term financial incentive that reinforces customer satisfaction and builds stronger partnerships.

Distributors, on the other hand, see rebates as a way to save money and consider them a part of their overall revenue. In today’s competitive marketplace, it is essential that distributors take advantage of vendor rebates to reduce their costs, ensuring their profitability.

However, many purchasing department’s find it challenging to manage numerous rebates with differing requirements and terms. To be successful in capitalizing on rebates, distributors must be able to track how and what to claim from a variety of vendors. Due to the complexities involved with managing rebates, some distributors choose to avoid them and will instead negotiate alternative pricing strategies. Yet, the ability to take advantage of rebates can be far more advantageous over time.

Types of rebates

• Volume Rebates: These are the simplest form of rebates. Instead of quoting a price based on a customer's promised order volume, the price is tiered and varies with the actual sales volume of the order placed. These rebate payouts are typically processed retrospective to the sales period and paid quarterly.
• Growth rebates: A variation on volume-based rebates, these are designed to drive the volume growth of a particular product mix. The rebate amount is paid on the condition of a targeted percentage increase in purchase volumes over the previous year. For example, if a customer purchases 10% more of a product line, they receive a rebate.
• Retention rebates: These loyalty programs are offered to reward repeat customers and are usually accrued over time and paid out at the end of the year. For example, a rebate is earned for every monthly order throughout the year and then is paid in December. This type of incentive program can take any form; volume-based, growth, or mix rebates. Retention rebates are an incentive for customers to place consistent orders over a specified time frame.
• Mix rebates: This rebate is used to encourage a distributor to sell a larger product mix, particularly specific products with higher profit margins.
• Percentage rebates: These rebates offered as a percentage of total revenue, such as a rebate rate of 2%. Percentage rates should be variable to avoid being mistaken for a discount. Offering these variable percentage rebates enables a seller to leverage them strategically to drive improvements.

Phocas Rebates

When margins are tight, the need for visibility and accuracy in your rebate management software is critical. Complex rebate agreements involving customer rebates, trading partners, multiple product lines and transactions can be overwhelming without a streamlined approach. With this in mind, Phocas has created a Phocas Rebates solution to simplify rebate management and the task of tracking your accounts payable and receivable. With accurate, accessible information, manufacturers and distributors can easily manage complex rebates programs for a wide variety of products with multiple vendors.

Phocas customer, WD-40 has started using the program for its complex rebates program across Europe and has yet to find a nuance that Phocas can't handle. With more than 100 rebate programs, Phocas Rebates allows WD-40 enter all the rules across timeframes, percentage change, and fiscal year vs calendar year, whereas previously this was done manually by numerous people over a few days each month.

Phocas Rebates allows you to enter rules related to your sales volume or purchasing volume to give you a clear view of your rebate payouts and revenue growth. Use the automated rebate performance dashboard to negotiate better rebate deals without giving away too much. Instantly see what your rebate claims, track eligibility, and accurately forecast rebate payouts over the next month, quarter or year. Simply adjust your rebate brackets to work within your budget. Conversely, Phocas Rebates can help you track rebate earnings and identify purchasing opportunities that increase sales and customer satisfaction.

Rather than relying on complex spreadsheets, your information is captured automatically from your purchasing database, eliminating the potential for errors and lost revenue. Phocas Rebates saves time by automating day-to-day administrative activities. Set up the rebate rules you want – whether percentage-based, volume-based, growth, or a mix. Once set up, it’s easy to track your rebate claims down to the individual transaction level.

Bring simplicity and order to your rebate management with Phocas Rebates and eliminate the guesswork from your rebate payouts and financial planning.