Customer Rebates vs. Supplier Rebates — What you Need to Know
When it comes to rebates there are two sides of the story: customer rebates and supplier rebates. How to differentiate the two can cause confusion. So, to explain the difference between customer rebates and supplier rebates we will take a different approach and think of them like a tango, rather than a war.
What are customer rebates?
Customer rebates is a term applied to the business process where a company is managing the rebate liabilities they have out to their customers: rebate monies they're going to pay to their customers at some point in the future.
What are supplier rebates?
Supplier rebates is a term that is used where a company is managing their income stream of rebates that will become due in, from their suppliers.
Why does it seem like rebates lead to friction and negativity?
Two sides of the same coin, or opposing forces?
You can see customer and supplier rebates as opposing forces, and lots of people do, but we don't. At Enable we see both aspects and realize that the income stream a company is managing from their suppliers is exactly the same stream as the customer rebate liability their suppliers are managing out to them.
Here's an example to illustrate the point: if your supplier is due to pay your company $1000, you're going to receive $1000. Your supplier has the expectation they're going to pay this, and you expect you're going to receive it.
- In other words, if you think you're managing your customer rebates you're actually managing your customers' supplier rebates.
- And if you think you're managing your supplier rebates you are, in fact, managing your suppliers' customer rebates.
Customer rebates vs. supplier rebates: a war
We know that many of our competitors draw a strong difference between managing customer rebates and managing supplier or vendor rebates. That's fine. Within a company it is common to separate the two -- customer rebates are often led by sales and vendor rebates are often led by purchasing -- but we should avoid thinking of them as opposing forces in a war for profit.
What can we learn from businesses that have adopted a more collaborative approach?
Imagine a tango instead: between a company and their trading partners
In tango both partners can dance magnificently on their own. And sometimes they do. But when they come together, that's when the real magic happens.
Joint business plans are like this: the marriage of synchronized efforts to create an efficient and effective collaboration. SaaS software that brings customer rebates and supplier rebates together allows both parties to create joined-up plans for mutual benefit.
When businesses talk about winning market share, beating the competition and joint execution these aggressive words imply antagonism. But is it necessary to beat our ‘perceived’ competition in order to succeed?
We don't believe it is.
We believe that the power of true rebate management success lies in the ability of those traditionally opposed parties: manufacturers and distributors -- who have historically sat on opposite sides of the rebate table -- to use true visibility as a differentiator that actually helps both of them.
If it's all about joint business planning, the joined-up dance, then customer rebates and supplier rebates should not be differentiated: they are two sides of the same coin. And if those coins can be turned into more coins it's good for everyone.
More goods get sold.
If you know that it will be paid, great. If you both know what it has actually achieved, even better! If you know that your suppliers helped you sell to those target audiences, you've both won!
One example: visibility of through margin
A rebate example -- one of our clients has multiple branches across the country. They are owner/managers and stakeholders in business profit. They aim to have completely up-to-date, accurate information, and Enable is helping them provide that to their branches. They are working towards full visibility of profit on goods sold -- for all branches, and across all product lines. Everyone wins.
“Transparent and up-to-date visibility of through margin allows branches to make informed business decisions on a day-to-day basis. They can manage their mix of products and apply their focus to areas of greatest profitability. It's absolutely critical.”
—Commercial Manager, Building Supplies Company
A second example: handling supplier negotiation fees
A second country-wide company reselling veterinary supplies provides goods to their branches, who sell them on, and charges a supplier negotiation fee (SNF) as part of the deal. They were historically relying on Excel spreadsheets to be able to calculate the difference between the cost of goods, the rebates received from the goods manufacturers and the rebate passed on. After massive business growth they realized how dangerous spreadsheets are for rebate accounting and turned to Enable to manage this complex calculation for them. And they haven't looked back.
“My team has all the contracts and the relationships with the suppliers. It's up to us to talk through the rebates and try to improve the terms for mutual benefit. If the rebates increase that will work for the partners -- they get a higher rebate -- but it also means our fee is higher, as part of the negotiation fee.”
—Head of Supplier Negotiations, Nationwide Veterinary Chain
Dancing internally: customer rebates and supplier rebates at your company
Another benefit of considering customer rebates and supplier rebates as a joined-up activity, rather than an isolated one, comes from looking at the two aspects of using rebates within one company.
The square dance of internal rebate management
Rather than an intense tango, managing both customer rebates and supplier rebates internally within one company is more like a square dance. Everyone is dancing in synchronized ways. And, while they're usually dancing separately the pattern is consistent, coherent and makes for a great time: when it's done right.
For us, the square dance of customer rebates and supplier rebate management is about clarity on through margin. Here's another rebate example to illustrate it: if you buy a product, you get a rebate on that product, you sell that product to a customer. As part of that deal you sell at a price and offer a rebate further down the line. When you put all together -- and find out what margin you've made on the sale to that customer -- that's when the square dance becomes a real party.
What's critical is for sales and purchases within a business is to do the dance to make it all match up.
The margin analysis on sales can be very hard to come by. There's the need to factor in customer rebates, supplier rebates, net buy price, net sell price and so-on. All of this needs to be in the mix -- never mind contract supported sales business, where the manufacturer is effectively supporting your sell price on specific sales, too -- it all makes for a highly obfuscated understanding of your margin on specific sales.
Making decisions sooner
Ultimately your profit and loss account will be reflective of your aggregate level of profitability. But how do you know where you're going to improve that? Which product should you be selling more of? Which customers should you be selling more to? Which products should you remove from your ranges? The devil is in the details.
True visibility gives you the answers to at least some of these questions: the through-market visibility to improve decision-making which, in turn, drives profitability. And seeing both sides of customer & supplier rebates internally can provide this visibility, quickly, easily and painlessly.
Customer rebates vs. supplier rebates: what have we learnt?
The world of true deal management visibility isn't just a pipe dream: it's a possibility if both you and your trading partners use Enable. We call it the Deal Economy: collaborative deal management. When everyone is on board all parties have a systematic approach, clear unambiguous definitions of deals and readily-available information -- not to mention the possibility of increased profitability.