How CFOs can Use Strategic Rebate Initiatives to Drive Revenue
The strategic CFO is so much more than a number-cruncher. They have the opportunity to shape the business and its future. But, to be a true business partner, they need to consider all revenue streams, including B2B rebates.
Why Driving Revenue is Critical Today
Fundamentally, there are two ways of improving profitability: Improve income, or reduce costs. With ever-increasing inflation, cost-reduction is a less-than-optimal strategy in today’s economy. That leaves revenue improvement as the only viable opportunity. Boosting revenue by changing pricing strategies or distribution channels is one option – another option is examining a potential source of untapped revenue more carefully: Rebates.
Many companies have been forced to re-evaluate their revenue streams. When we spoke with Tim Foster, Partner of Risk Advisory Services at BDO, he said, “the vast majority of his clients have been looking to make their revenue streams either more effective and efficient or consider revenue streams that they may not have tapped into before.” Rethinking your rebate management strategy allows this revenue item to play a potentially more significant role. As Tim explains, “rebates might not be right up there in terms of the level of revenue as a standalone item, but when it's all built up, it can actually constitute quite a large number.”
According to Gartner’s CFO’s 2022 Playbook for Enhancing Profitability & Driving Digital Acceleration, 74% of CFOs cite lower profitability as the biggest risk organizations face due to input price inflation. Despite the uncertainty, PWC says a vast majority of CFOs are investing in technologies like cloud and analytics to drive growth. In January 2022, they reported that 48% of CFOs planned to accelerate digital transformation initiatives to maintain or increase margins in the next 12 months.
With fractured supply chains remaining a major ongoing factor for many rebate-handling B2B organizations, addressing and optimizing these is a key priority. PWC says, “Success means transforming linear supply chains into autonomous supply chain ecosystems.” This is no easy task. However, once supply chain visibility is improved, it’s possible to optimize ecosystems more effectively.
Rebates are an essential part of an effective supply chain ecosystem. But it’s impossible to know how well they’re functioning if you don’t know what rebate margins and, ultimately, profits are. Savvy CFOs know knowledge is power. Investing in the right rebate management software gives both.
“CFOs are leading the effort to develop new revenue strategies because they understand how to prepare for them and where to invest the company’s time. Often, they are best placed to lead the analysis of the huge amounts of data companies have accumulated and optimize that to build new client, as well as products and services, propositions.”
- Mike Kuehnel, Partner, Bain & Company, quoted in FM Magazine
What Rebate Initiatives can CFOs use?
Keeping track of rebates more effectively gives confidence and control. While this budget line has previously been an afterthought, having access to accurate, trustworthy rebate information allows organizations to revisit rebate deals and agreements, improve payment or collection times, and find new revenue opportunities for mutually-beneficial growth.
Enable’s customers who have switched from seeing rebates as a necessary evil to a strategic revenue source have discovered missing rebate, improved cash flow management, tracked earnings and tiers earlier in the financial cycle and optimized deal spend or income appropriately.
How? By using any of the top seven types of rebate deals:
- Product launches
- Growth incentives
- Product mix incentives
- Central distribution center rebates
- Marketing funds and
- Conditional discounts.
The strategic value of rebates goes beyond short-term revenue generation, however. Improving rebate management streamlines processes, saves time, helps create data-driven insights through analytics, enhances business agility, and may even assist hiring and retention initiatives. Beyond these obvious benefits, leveraging the power of rebates can take CFOs into the heady realm of value architecture. By combining financial acumen and resource optimization, CFOs increase business value and their standing in the eyes of the CFO and the Board.
How CFOs are in a Unique Place to Enforce the Strategy
Deloitte describes four potential orientations CFOs can use to engage in the strategy process. A CFO can be a responder, a challenger, an architect, or a transformer.
- Responder CFOs support the company’s strategic development “by helping key business leaders quantitatively analyze the financial implications of different strategy choices.” More commonly used in decentralized businesses where business-unit leaders are accountable for strategy and performance, this support-type role applies if CFOs’ functions are limited to quantitative and analytic support.
- Challenger CFOs focus on finding “future value in the strategy process by critically examining the risks to, and expected returns on, different strategy alternatives.” Sometimes called “Dr. No,” the CFO can be critical in reviewing major investment strategy decisions.
- Architect CFOs work together with business leaders to apply finance strategies in combination with other business strategies. “Architects go beyond the challenger orientation to enable the financing of innovative initiatives through varied finance strategies and finance arrangements with suppliers, customers, or delivery channels.”
- Transformer CFOs become a lead partner to the CFO to shape and execute future strategy. “CFOs as transformers proactively engage in addressing the core questions in a strategy process, and they develop and execute options through finance in a way that allows the company to shift its strategy effectively.”
Regardless of which approach you choose, it’s worth considering the strategic role rebates currently play in your revenue-generation strategy and which role they should play.