The Trials and Tribulations of a Customer Rebate Program
Customer rebates are what a seller pays to another business whether they’re a direct customer, an indirect customer, or a buying group. Customer rebates are a key contributor to the flourishing Deal Economy, which last year was worth $500bn in the US alone. The following blog outlines the challenges faced and some practical steps you can take to regain control of your customer rebate programs, and start maximizing their value to your business.
What is a customer rebate program?
Customer rebate programs are great in that they drive the selling behavior of resellers and distributors on more than ten trillion dollars in North America and Europe alone. The large volume of money attributed to customer rebate programs is hardly surprising since they include everything from simple rebates to marketing development funds (MDFs), co-op funds and special pricing agreements (SPAs).Customer rebate programs are essential to operations in various industries including building supplies, electronics, retail, and wholesale distribution and can be offered to certain locations, on certain products or product groups and on certain types of transaction. This means that they can get rather complex and can be a significant challenge to manage.
Why do customer rebate programs exist between manufacturers and their customers?
Essentially, rebates exist to encourage distributors to buy specific products for sales in market sectors that both parties have agreed on, in order to benefit both distributors and manufacturers. The idea is to use incentives to turn joint business plans into reality by producing focused, targeted deals that will drive sales and mutually profitable growth.
So why are customer rebate programs such a challenge?
Unfortunately many distributors don‘t have a way to track performance. Since the customer rebate deals are typically managed through fiendishly complex spreadsheets, often administered by one person, the spreadsheet that once enabled the very first deal agreements soon becomes a stone around a company’s neck — whether they realize it or not.
Auditors do not trust spreadsheets for managing customer rebates the way they trust rebate systems with built-in rules and guidelines. Spreadsheets have inherent issues with compliance and accuracy – since it is difficult to track changes with them, they can be hacked, they are often subject to hidden errors and there is a large risk of data corruption — particularly if spreadsheets get too big, or are used over too long a period of time. Additionally, since they are typically the domain of a single expert employee, this creates a key person dependency which can prove disastrous if that individual were to leave the business. The lack of a system for the management and accounting of customer rebate programs is a massive risk.If customer rebates programs are not managed appropriately, they don’t drive behavior. If those responsible for executing against them can’t track their progress against targets the carefully worked-out deals often sit in spreadsheets or filing cabinets, gathering dust, until it is time to see what was really sold and, with a bit of luck, to check whether incentives were met. These are just some of the trials and tribulations of a customer rebate program and this behavior means that tens or even hundreds of millions of dollars worth of rebates are tracked using spreadsheets alone.
“B2B customer rebates can be very effective when used appropriately, but have historically been hard to track — resulting in confusion between manufacturers and their customers. This can have a direct impact on companies’ profits — often due to the narrow profit margins on items sold and the high value of incentives when targets are reached.” – Scott Benfield, Vendor Funds Management article
A customer rebate example to illustrate the point
Regardless of how a customer rebate deal has been set up, when reporting time comes around the distributor or reseller’s finance team will need to combine and reconcile various spreadsheets and ask for their rebate. On the other side, the manufacturer will have reconciled their own spreadsheets. In this customer rebate example (and often, in real life), their data tells them that the reseller has not met their rebate target.
The information doesn’t match up. So, unfortunately, because neither side has the systems, the data, or the ability to interrogate the information at the end of the line in place, they can’t report accurately. Tempers flare. The deal that seemed simple enough is invalidated. Trust is broken, the customer experience is negative and, in a worst-case scenario, the customer may even move to buy products from a different manufacturer — resulting in lost opportunities for both parties. With inaccurate data, which is often hidden in disconnected spreadsheets, the possibility for misunderstandings, lost opportunities and financial inaccuracy are rife. Hence the need for an effective customer rebate program.
Now multiply this by a thousand, then times that by a million
Now imagine this rebate scenario multiplied by thousands of customers (wholesalers, their outlets and their stores) and hundreds of thousands — if not millions — of product lines: each one potentially with its own agreement, timelines, percentages and conditions. That is the situation typically facing manufacturers and their customers. In fact, research by Industrial Supply Magazine states that “57% of distributors don’t maximize funds, leaving a significant amount of money on the table”. Customer rebate management is complex, unpredictable, fraught with misunderstandings and stressful for almost every party involved.
“57% of distributors don’t maximize funds, leaving a significant amount of money on the table”.
At least, it used to be. In an ideal world, however, B2B customer rebate programs can actually be used as a helpful sales tool for manufacturers and a reporting tool for finance, sales and contract leaders. When a customer rebate program is handled well, using appropriate tools, it can be drive collaborative behavior and financially beneficial results for both parties. Not only does it help both parties manage the funds that typically make the difference between a reseller’s profit and loss, it also builds the basis of a true partnership between manufacturers and their customers.
Aren't customer rebate programs just for resellers and distributors?
B2B customer rebate programs has been around for a while – helping resolve the challenges facing resellers and distributors when it comes to claiming more of the funds to which they are entitled. And, until recently, short-sighted manufacturers may have believed that this put them at a disadvantage. But those with a long term view in mind realize that when both parties collaborate, manufacturers are able to serve and retain more customers, more profitably — for the benefit of everyone involved in the deal agreement. That is the beauty of customer rebate program.
A customer rebate program helps by:
- Improving partner relationships
- Providing financial compliance and reduce audit risk
- Easing cash flow for customers
- Improving rebate accuracy and predictability
- Growing your business thanks to the true execution of joint business plans between manufacturers and their customers.
There is a simple resolution to the trials and tribulations of a customer rebate program
At Enable, we envision a collaborative world where merchants and their trading partners work together seamlessly to win, serve and retain more customers, more profitably. That’s what B2B customer rebate management means to us. Rather than seeing customer rebate programs as being about a complicated and frustrating world of incomprehensible deals, we know that working together will make both parties more effective. As a result, manufacturers’ sales people will have all the information they need to be able to help their distributors meet their rebate targets, and finance teams can finally get a good night’s rest – free from anxiety about whether their business will be able to meet their financial targets or not, because of the unpredictability of their rebates. We call that a win-win.