Many companies in various industries across the supply chain view rebates as a price of doing business. Everyone offers rebates — and if you don’t, potential trading partners might see that as a red flag. Rebates are tremendously powerful and the healthiest incentive available to every member of the supply chain.
When managed properly, they allow you to sell more items more often by promising customers money back on their purchases. They help align partners in a way that doesn’t erode their pricing power or margins. When supply chain partners are aligned and coordinated as seamless extensions of each other to achieve the best outcomes, we’ll see our supply chain’s health improve and transform into a thriving partner ecosystem.
In this article, we discuss how rebates provide benefits to many industries at every step of the supply chain.
If you’re a manufacturer, distributors and retailers expect you to offer rebates. In fact, many manufacturers view rebates as a cost of doing business. In Enable’s 2023 Annual State of Volume Rebates Report, we found nearly 40% of distributors believe manufacturers offer rebates because it is an industry expectation. Luckily, 66% of manufacturers offer annual volume rebate programs to their customers. But rebates are much more than merely a cost of doing business for manufacturers. Rebates are a powerful tool for collaboration, transparency and revenue growth.
In the same report, we also found that 2 in 3 manufacturers offer annual rebate programs to influence long-term behavioral changes. That’s why they see rebates are a versatile tool that they can tailor to their specific needs.
For example, a manufacturer will offer rebates to:
- Reward the distributor for purchasing a certain number of product units. This encourages the distributor to meet that purchase threshold so that they receive money back in the form of the rebate.
- Drive higher purchase volumes of a product, if you’ve overproduced a certain product.
- Increase sales of a new product through product mix rebates. By pairing this new product with another, high-margin product you can offer a rebate for the combined purchase.
Rebate programs help manufacturers achieve specific goals, so that’s where you should start. Figure out what your goals are: increasing sales volume, protecting margins or driving loyalty, among others. Then align your rebate programs to your goals.
“With Enable, we’re asking what more can we do? What rebate deals can we put in place to support customers so that we grow together? We’re excited to use rebates to promote products to our merchants.”
Hannah Dempsey, Market Analyst at Naylor Industries
While the wholesale distribution industry is growing, distributors face both the threat of being cut out of the supply chain due to supplier disintermediation and stiffer competition from their peers. Wholesale distributors must find a way to use rebates to compete with direct deliveries (from manufacturers to retailers or straight to consumers).
According to Enable’s 2023 Annual State of Volume Rebates Report, many distributors already have rebate programs with 50 of their top 100 manufacturers, representing two-thirds of sales. Volume rebates – the most common type of rebate program – are used by around 90% of distributors. At a basic level, volume rebates are incentive programs structured around tiered thresholds. If you buy enough of a specified product to reach each increasing purchase threshold, you earn a higher rebate rate. With this type of rebate, you are incentivizing your partners to change their purchasing behaviors.
With the vast majority of distributors engaged in some type of rebate program, it’s clear that rebates reduce the cost of doing business, allowing more investment in inventory that helps to drive revenue growth, and contributing a significant amount to the bottom line.
“Rebates can play a very large role in the profitability of the business. As I built out our forecasting capabilities, I realized that rebates were a major blind spot. The major frustration I had is that I couldn't feel confident about our forecasts for rebates, putting their accuracy and reliability at risk. I wanted to know when rebates are actually earned.”
Matt Freedman, Director of Finance, General Plumbing Supply
Factors such as the war in Ukraine coupled with rising consumer prices, supply chain problems in delivering materials and a continuing labour shortage all contributed to an incredibly challenging year for the construction industry. Due to these struggles, many are seeking new paths to profit. One of these ways is rebates.
Mark Larson, CFO at MacArthur Co., tells us that rebates are an essential revenue driven for MacArthur, with some of their rebate deals with vendors worth major dollars. “It’s a big, big part of our profitability for our company,” he notes, “And so we’re always looking obviously to maximize that.”
To get the most dollar out of your rebates, it’s best to have a strategy in place and identify the suppliers that present the greatest opportunity for your construction business, then negotiate mutually beneficial incentives that will help both your organizations reach their growth goals.
For example, if you sell construction products, such as bricks, timber, drywall and insulation, one of those items may be slow to sell but have a high margin. To help move more drywall for example, you offer customers an incentive when they buy a mix of drywall and other products. You tell your customers that if a specific amount of their purchase is drywall, then they receive a rebate on their whole purchase. This incentivizes your customers to buy more of the product that increases your margins while giving them money back on their whole purchase. Everyone wins!
DISC forecasts for 2023 that the electrical wholesale industry will be at $126.4 billion in total sales, down from $136.6 billion in 2022. Despite this projection, rebates offer the electrical industry many opportunities.
Electrical distributors are empowered to negotiate market level rebates with key suppliers, and to put those agreements to work to fuel growth, profitability and customer loyalty.
There are many types of rebates that you can use, from simple volume discounts with fixed rates all the way to tiered volume incentives to special price agreements. Whatever rebate strategy they choose, the revenue from these can have a profound effect on an electrical distributors’ bottom line, while helping them to achieve growth in a slow market.
For distributors, rebate strategy with manufactures must take into account more than just the rebates a manufacturer offers. Protecting margins, offering shelf space and consolidating buying power are all critical parts to a good rebate strategy for distributors.
“Some of our core vendors have had rebates that are predicated on growth and certain elements of things we mutually want to see. Managing that aspect of our business has been a core foundation of our success going forward for Rexel Canada.”
Jeffrey Moyle, Vice President, Supplier & Digital Strategy at Rexel Canada
LEARN MORE: Rebate Challenges in the Electrical Industry
High inflation, spiralling supply chain costs and competitive pricing pressure means margins are approaching rock bottom for many retailers. Retailers should consider strategic investments such as rebates that could enable profitable growth during inflationary times.
Manufacturers use rebates directed to the end customers and/or retailers in their distribution channels to increase sales and market share. These rebates allow retailers to reward customers for large purchases, drive incremental sales, and give them valuable consumer data which can be used to drive sales and improve marketing strategies. By working together as partners, retailers and manufacturers can provide the greatest value to customers at the lowest possible cost.
For our retail customer, Advance Auto Parts, maintaining trust with their sales team and incentivizing their customers has always been critical. AAP needed to make sure that every sales team member and customer received every single dollar that they earned. Bob Gay says, “They've trusted us to supply them with parts, and we have an incentive program that exists to incentivize them to purchase more. We want them to do more business with us, and that's part of the relationship.”
How These Industries Can Use Rebates as a Strategy
As you can see, rebates are an excellent strategic tool to help many important industries drive efficiency and growth. When you have a robust rebate strategy in place, you:
- Issue and receive rebates quickly and accurately
- Reduce time to close at month end
- Capture more loyalty and trust from customers
- Drive more revenue for your company
If you want to take it one step further, implement rebate management software that simplifies the process from start to finish. As rebates grow more complex, you need a piece of software that helps you compile all your deals and runs your rebate calculations accurately. Plus, a good rebate management software will allow you to securely share deal data with your partners — which means no disputes when month end comes around. Whether you’re ready to make the move to a rebate management solution or just want to talk more about rebates, we’re here for you.