Whatever industry you are involved in, forecasting the potential earnings for your business is essential in preparing for the ups and downs of the year ahead. But how do you make decisions about your budget, such as how many employees you can afford to hire or how much you can spend on marketing if you don’t know how much revenue and profit you’ll be generating?
Accurate forecasting and accurate accruals are vital to success within your business to ensure that you are aware of what the future is likely to hold so that you can appropriately allocate resources to assist in key areas. For many businesses, forecasting is not a focus and even for those that make a point to forecast their future, various challenges can limit the accuracy and benefit of these forecasts.
With this in mind, let’s dive in to the four common challenges of forecasting rebates.
What problems do businesses hit when trying to forecast rebates?
1. Many in-house forecasts are too basic
Often, in-house systems forecast earnings or payments by a simple linear extrapolation based on qualifying spend for a particular deal to date until the end of the deal.
This method means that the effect of seasonality to the business is not accurately represented and expert knowledge of the industry cannot be used to influence the forecast. As such it can be a risk to accrue and plan for the future against these numbers because they are just too unreliable.
2. Renegotiating the best deals in the future
If forecasting is not a focus of a company, then the actual benefit of deals cannot be compared to an accurate representation of the expected benefit of the deal.
This means that any discrepancies between actuals and forecasts cannot be fully investigated and key areas where a business may be over or under performing cannot be identified. Therefore, the business cannot be fully informed heading into negotiations and is unlikely to renegotiate the best deal for themselves in the future. This will lead to missed opportunities for increased earnings.
3. Forecasting is too manual
In many cases a business’s forecasts are handled by a select few individuals who are responsible for many deals. As these agreements are often complex with different rules and caveats this can place a huge burden on them and introduce a lot of human error and bias to the numbers which increases the risk of an inaccurate forecast and inaccurate accrual.
If an automated system could handle this, it would free up these individuals allowing them to use their expertise to benefit the company elsewhere as well as adding more reliability to the numbers so that you can have more confidence in your forecast.
How much time does it take you to produce a forecast?
What would it cost to automate the process?
What foundational capabilities are required first, before you can consider automation?
4. Forecasts are not updated throughout the deal
Rebate forecasts for specific suppliers or customers will change throughout the term of the deal based on their current spend and the length of the deal. In some rare cases, actuals may overtake forecasts at a certain point in the year. Obviously for forecasts to be accurate they need to be updated daily as the length of time remaining in the deal will change and new data may be available every day also.
Many businesses simply do not have the resources to update these values regularly which can lead to inaccurate or out of date forecasts being used to influence business decisions.
The practicalities of forecasting must be addressed. Some businesses simply do not possess the granular data that is required to provide detailed forecasts at various levels. If they do have this data it might be hard to consolidate it.
It can be easy to fall at this first hurdle, but a better grasp on your company’s data as a whole will provide benefits more broadly than purely in forecasting.
Some companies simply do not have the manpower to devote to developing a thorough forecasting process. For these businesses, an out of the box software solution may be ideal to provide maximum clarity and visibility rapidly without burdening current employees with new responsibilities.
Another potential pitfall, particularly when it comes to forecasting rebates, is that rebate agreements can be surprisingly complex. If rebate data is not captured correctly you could be driving your forecasts with incorrect dates and values which will inevitably lead to discrepancies with your actual numbers. If your forecast is built on shakey foundations then it might not be worth the paper it is written on.
For anyone searching for a full rebate management system, it is important to ensure this system is all encompassing and allows you to not only capture and record rebate agreements, but also generate robust forecasts.
Finally, when proceeding with trade after your forecast, it is important to remember that this forecast is just a forecast! With the aid of reliable and accurate forecasts your business can plan its future more reliably and over time, increase your actual numbers.
What is the role of a rebate management system?
We sat down with Peter Hindle MBE, an expert from the building materials sector, to talk through the way leading manufacturers and distributors are using rebate management software. You might find this video useful if you’ve just started researching how rebate management systems work.
Forecasting potential earnings is the backbone of financially sound businesses. For a company to accurately predict their future — and influence key strategic business decisions regarding rebates — then they must have a firm grip on their forecasting process.
For many companies their rebate forecasting process is often too arduous and basic with many resources being wasted to provide a potentially inaccurate and generally unreliable forecast. Improving the forecasting procedure carried out at your business will allow you to have more confidence in the figures that you base your future plans on, and could free up time that is being wasted on poor forecast processes.
Whether you’re planning world domination or just to survive, a reliable prediction of the future will allow you to better formulate your strategy and give your business more confidence.
More about forecasting
- Our article from last January covers the essential aspects of rebate forecasting and central purchasing: Consolidating purchase history across multiple ERPs. It covers modelling and forecasting deals, workflow for tracking your agreements and other time saving tips.
- Are you thinking about your rebate accounting processes? We’ve got 6 ways you can improve them.
- How can you ensure you keep track of your rebate contracts effectively and reliably? Our free guide will give you all the information you need to implement a structured approach to effectively managing rebates and complex trading agreements. To grab a copy, click the button below: