What are Business to Business Rebates (B2B Rebates)?

What are Business to Business Rebates (B2B Rebates)?

More than 70% of global trade goes through B2B channels before reaching the end consumer, and much of this activity involves some type of rebate program. Manufacturers often deal with customer rebates, which reward distributors, retailers and buying groups for driving volumes, and in the process win their loyalty—while driving mutual, strategic growth.

B2B rebates are typically financial incentives given by a manufacturer or supplier in order to motivate their trading partners to perform a certain action (such as increasing volume or spend or purchasing add-on items) to drive sales and profitability. As this happens over a long period of time, trading partners receive the rebate at the end of an agreed period or when the requirement is complete instead of an upfront discount.

Subsequently, both sides of the trading relationship come together to win, serve and retain valuable customers.

Example of a B2B Rebate

What do B2B rebates look like? Well, they can take many different forms. All B2B rebates should be tailored to your trading partners. Some rebates target individual products while others target specific requirements and product combinations. Let’s start with a simple example: the volume rebate.  

Quite simply, volume rebates are earned when volume-based turnover targets have been reached. This means a trading partner needs to purchase a certain volume of product units.

In our B2B rebate example above, once your partner purchases their 10,001st unit, they receive a 4% rebate, fully retrospective across all purchases (all 10,000 prior purchases), for that contract period.  

You might think that if retrospective rebates exist, then non-retrospective rebates must exist, too, and you’d be right. If you implement non-retrospective rebates, your partner doesn’t receive any rebates on units 1–10,000 but does receive rebates on all units purchased after that—at least until they reach their next threshold. This means that units 10,001–25,000 will receive a 4% rebate and units 25,001–50,000 receive a 10% rebate.

Most businesses prefer retrospective rebates because they are much easier to calculate.

Regardless of the type of rebate program you implement, rebates are a collaborative tool to grow relationships and encourage loyalty.

More B2B rebate examples can be found here.

Most Popular B2B Rebate Types

B2B rebate programs vary dramatically depending on the nature of relationships between suppliers and distributors, market conditions and many other factors. Here are a few popular B2B rebates:

Volume Incentives

A reward paid if purchases of a certain product or product category meet a defined volume.

Value Incentives

A reward paid if purchases of a specified product/range or all activity meet a value threshold.  

Ratio Incentives

A reward paid if the ratio of buying meets a defined ratio or %. For example, 25% of all purchases must be in the seasonal range for a rebate to be paid on all activity.

Market development funds (MDF)

Funding for sales and marketing campaigns designed to generate demand and sales for the product.

Special Pricing Agreements (SPAs)

Funding to help the distributor/retailer match a competitive price in the marketplace.

Who Uses B2B Rebates?

  • Manufacturers use B2B rebates to incentivize distributors and retailers to choose their product. They can do this in many ways, including discounting products to encourage the purchasing of larger volumes.
  • For Distributors, B2B rebates have become an important part of their financial sheet. For example, electrical distributors typically report around 40-60 percent of their operating profit comes by way of rebates. The best B2B rebate programs are built around distributor behaviour.
  • Buying groups give smaller companies far more purchasing power than they would have on their own. Members can unlock lower pricing than what’s otherwise available to them due to the bulk orders that the buying group places. B2B rebates are the engine that drives the membership.

Importance of B2B Rebates

Many businesses consider rebates an afterthought at worst or an added bonus between trading partners at best. However, many organizations are now seeing rebates emerge as their newest source of revenue.

Rebates can function as a tool to align pricing and performance, ensuring that vendor forecasts and negotiations are as accurate as possible. Plus, they are excellent tools to incentive buyers while reducing costs.

B2B rebates are also essential for maintaining strong relationships between trading partners. With the right rebate management system, you can eliminate any ambiguity and bring together any disparate parties involved in B2B rebates.

How can you Manage B2B Rebates More Strategically?

Although rebates are simple in theory, they can be complex in practice. That’s you need a rebate management tool that streamlines the process.

At Enable, we see the following three points as key to the success of any B2B rebate strategy:

  • Specific and tailored to drive the desired behaviour
  • Visible and transparent to all partners
  • Using the right tool for the right job

Therefore, we believe it’s important for companies to have a centralized and accessible rebate management platform which will easily transform rebate complexity into simplicity, provide confidence and visibility with real time updates and ultimately drive mutual benefit.

Think of it this way: the more rebates that are paid out, the more you and your trading partners benefit—and if this isn’t the case, you should review your rebate terms. Collaborating together to maximize those rebate earnings, which means visibility of where the rebate earnings are tracking, is fundamental for success!

Download our white paper: 8 strategies to increase margin with rebates.

Elizabeth Lavelle

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