The Secret to Driving Growth with Rebates
You might have heard that rebates can help you drive growth for your business, but figuring out exactly how that happens doesn’t always yield clear-cut answers. This can be frustrating for businesses that want to use their rebate programs to increase sales and boost their bottom line, but remain unsure of where to begin. Today, we’ll let you in on the secret that nobody talks about when it comes to leveraging your rebates for growth.
A Brief Note on Rebate Strategy
First thing’s first: let’s talk strategy. Rebates are not just a passive incentive program; they are a strategic opportunity to drive desired outcomes and behaviors. Using only formulaic, ready-made incentive structures without a larger strategy at play can set your rebate programs on a slow path to inefficiency and decay. You need the insight into your products and performance – as well as your company’s needs and goals – to develop an informed strategy and shape your incentive programs around it.
The Key to Driving Growth with Rebates
With that in mind, it’s time to reveal the key to driving growth with rebates: rebating the right product.
Rebate strategy can be a bit of a trial-and-error process, and the path forward is not always clear. If you’re looking to increase your profit margin, it seems only sensible to increase your rebates on items that sell for higher prices. Raising sales on higher-margin items should be better for the bottom line, right? Unfortunately, putting this theory into practice has shown that this is not always the case. Even with rebates, it is possible to have too much of a good thing.
Choosing the Right Product to Rebate
Expanding your rebates on an item that sells for more money can cause damage to your bottom line. Instead of driving the behaviors and results that you intended, having too low a screen margin and too high a rebate can drive the wrong behaviors, as “hiding money in the back” can make your trading operations uncertain about how much they’re actually making.
This ambiguity is a common problem hindering the performance of rebate programs; in fact, 46% of manufacturers believe that better awareness of their trading program from their trading partner would improve the effectiveness of their rebate program. When your rebate programs lose the confidence of your trading partners and stop driving desired behaviors, they’re no longer protecting margins – they’re actively damaging sales.
To demonstrate this, imagine that you’re selling two products of varying margins. One has high margins of 20%, while the other only has a 10% margin. You may think that increasing the rebate on the product with 20% margin is the way to go, but that’s not always the case. If your trading partners don’t know how much money they’ll make from the incentive, they’re less likely to take the risk. If your business is facing this situation, increasing the rebate on a lower margin item might be a better and more sustainable way to increase your revenue.
Using Rebates the Right Way
Success in rebate management often comes down to using the right tools for your strategy. You need to understand the function and outcomes associated with specific incentive structures. Using a hammer to drive screws into the wall doesn’t build a strong house, it weakens the foundations. Similarly, using the wrong incentives to drive your desired outcomes isn’t just ineffective – it’s harmful to your whole strategy.
Taking an uninformed or misguided approach to rebates can harm more than just your margins; it can damage your team and trading partners’ perceptions of rebates as well, causing them to lose faith in one of the most effective incentives in a dealmakers’ toolkit. Attempting to keep up with more rebates than you can handle can quickly slide into disaster. Fortunately, automated rebate management software like Enable can now expand your team’s capacity for both the volume and complexity of deals, allowing them more time to focus on strategic planning, proactive problem-solving and building trading relationships.
Used the wrong way, rebates can tie up cash, hinder trading and decrease trust. Rebates used the right way can enhance margins, strengthen trading relationships and make businesses more collaborative. Don’t let your rebate programs fall by the wayside – dig deep, use the right tools for the job and make informed strategic decisions.
Ready to learn more about driving growth with rebates? Check out our new white paper to find out which incentive type is right for your business.