Everything You Need to Know About Manufacturer Rebates
Manufacturer rebates are incentives offered by manufacturers to distributors to encourage the purchase and sale of specific goods or products in order to meet targets which are often highly specific. Manufacturer rebates are designed to drive behavior because they are claimed back retrospectively, once distributors have met their targets.
In a highly competitive environment, distributors can choose which items to sell from a large range of options. Manufacturers need to incentivize distributors to choose the products that are most beneficial to them. Manufacturers can do this in many ways, including discounting products to encourage the purchasing of larger volumes. However, lowering prices either may encourage other customers to expect the same discount, or run the risk of creating a downward spiralling price war with competitors.
The alternative, offering a variety of incentives including these top 7 types of rebate deals, forms the basis of a solid incentive or rebate program. A well-designed, executed and tracked rebate program forms the foundation of a robust business model that makes sense for both manufacturers and distributors as it allows manufacturers to ensure that the retrospective discounts remain profitable due to volume targets and other methods, whilst allowing distributors to have lower net costs and increased loyalty to the manufacturer.
The importance of managing manufacturer rebates properly
When manufacturer rebates are working effectively, they drive mutually profitable growth for both for the seller and the buyer. Benefits include optimized revenue, reduced costs, managed risks, and optimized cashflow.
Historically, manufacturers have tracked rebates through spreadsheets and ERP systems that aren’t fit for purpose as they are open to human error, have poor auditability and require lots of administration. As a result, it is often hard to manage manufacturer rebates optimally. When this happens, distrust, frustration and suspicion begin to creep in between partners. If there is little visibility of how much has been sold, what payment will be made, and when this payment will be made, relationships become strained. Without the right tools, operational efficiency suffers, internal (as well as external) friction takes place, communication can break down, and manufacturer-supplier relationships degrade.
Challenges of rebate management for manufacturers
Unfortunately, relying on siloed systems to manage manufacturer rebates means it’s hard to see whether rebates are working effectively. Without good quality data, it’s hard to track whether manufacturer rebates will achieve their intended goals or not. The resulting lack of visibility creates short-term challenges for commercial teams who aren’t able to encourage distributors to reach targets that they could reach, simply because they don’t know how close they are to reaching them! The trading relationship suffers and manufacturer rebates become less of an incentive, and more of a bone of contention because benefit is not fully realised even though resource has gone into administration.
In the longer term, improper rebate management may make it impossible to understand whether manufacturer rebates are providing adequate return on investment, defeating the whole point of having rebates in the first place!
What benefits can manufacturers gain from managing these rebates better?
When manufacturer rebates are managed efficiently, true incentive value can be unlocked, painlessly and accurately.
Proper rebate management becomes easier when a system designed specifically to handle it is employed. This allows manufacturers to calculate rebates more efficiently and effectively, and create and track new deals much more easily. For example, some tools already make thousands of deals available to choose from. Systems like these can allow manufacturers to support every deal and rebate agreement they can imagine.
Another benefit of managing manufacturer rebates more effectively is the ability to safely and seamlessly satisfy legislative requirements. Tracking consistent, secure and auditable workflows, based on your own internal processes, ensures the auditors are satisfied. You can even collect digital signatures for accurate tracking and accountability. Additionally, having a single source of data truth (rather than the amalgamation of complex spreadsheets prone to human error, or information stored in multiple ERPs or systems) also reduces the likelihood of errors creeping in.
With Enable’s rebate management software, you can track performance on a daily basis and analyze risks and opportunities easily (with one tap or click). It’s also possible to maximize value from your rebate deals with daily visibility of their impact on your sales numbers, and uncover ways to create stronger, mutually beneficial relationships with your partners.
The right rebate management software even helps your finance team reliably, accurately and confidently predict rebate payments. By seeing actuals to date, you can report on spend and rebate accounting performance for the current vs. previous year, and see actuals vs. forecasts for the year-to-date, and the full year! You’ll even get margin warnings that help you spot incorrect selling prices.
Finally, having instant access to rebate program data improves communication between partners. When all parties have information available at their fingertips it reduces the need for queries, and massively reduces response times between manufacturers and distributors. For example, being able to invite trading partners to collaborate on deals directly allows manufacturers to manage deals more effectively, while minimizing disputes. As a result, the partnership is more likely to deliver value, and the relationship improves.
What should manufacturers looking to improve rebate management do next?
83% of manufacturers believe that improving process efficiencies is critical or high priority over the next two years, according to this “Trends in Manufacturing” report. If you’re one of them, you know that it’s time to take full control of your manufacturer rebates and B2B deals. The right rebate management software helps everyone involved in the process: distributors, buying groups, and manufacturers.
Find out how manufacturers use rebates to increase customer loyalty or schedule a demo so you can discover the power of Enable: trusted rebate management software used by leading manufacturers across the world.