Why are Rebates and Rebate Management Important for Manufacturers and Distributors?

Why are Rebates and Rebate Management Important for Manufacturers and Distributors?

Manufacturers and distributors have different responsibilities, priorities and needs when it comes to succeeding in the supply chain – but rebates play a pivotal role in driving revenue and growth for both parties. Businesses at every stage of the supply chain are beginning to adopt a more strategic approach to rebates with the aim of selling and distributing products more effectively, whether that be through increased margins, stronger partnerships or better price points. These deals are an increasingly common feature of trading relationships, especially among manufacturers and distributors – but why?

Today, we’ll take a look at the growing significance of rebates for manufacturers and distributors amidst a changing supply chain.

Why Rebates?  

Issues like the COVID-19 pandemic and the war in Ukraine have laid bare the true unreliability of the global supply chain, revealing it to be a volatile and fundamentally fragile system. This has inspired manufacturers and distributors across the world to search for ways to mitigate associated issues such as errors and delays through strategic partnerships, automation, transparency and digital collaboration.

Amidst this chaos, rebates have emerged as a reliable tool for businesses to drive consistent sales, boost profit margins and build stronger trading relationships. Whether you’re offering the rebate or claiming it, rebates are among the most mutually beneficial incentives a business can leverage for strategic growth and stronger partnerships. Rebates strengthen trading relationships in a way that few other forms of incentives can. They promote customer loyalty, collaboration, data transparency and effective communication – facilitating a successful and synergistic supply chain partnership.

Rebates for Manufacturers  

Rebates are a versatile tool that businesses can tailor to their specific needs. As a  manufacturers, maybe you’re looking to boost sales on an underperforming, high-margin SKU. To achieve this, you can design an incentive program that pairs the high-margin product with a popular low-margin SKU, rewarding customers with a rebate for buying a specified ratio of these products. This is called a product mix incentive. This is just one of the ways in which manufacturers design rebates to sell their products more strategically.

Rebate programs are a popular tool among manufacturers looking to improve their margins and influence their trading partners’ buying behaviors. Our recent State of Volume Rebates report found that 2 in 3 manufacturers offer annual rebate programs to influence long-term behavioral changes. We also discovered that when manufacturers make fuller use of rebate incentives, they typically achieve a 1.64% margin uplift — or an extra $16,400 for every $1m in profit.

Distributors use rebates for similar – albeit distinct – reasons, but are the benefits as significant as those for manufacturers?

Rebates for Distributors  

Short answer: absolutely.

Rebates are especially important for distributors. On average, distributors have rebate programs with 50 of their top 100 manufacturers, representing two-thirds of sales and 60-100% of net profits. Volume rebates – the most common type of rebate program – are used by around 90% of distributors. With the vast majority of distributors engaged in some type of rebate program, it’s clear that rebates play an essential role in driving and maintaining their profits.

While rebates clearly play a significant role in driving revenue for distributors, their methods of managing rebates directly affect how successful they are. Distributors using spreadsheets to manage rebates typically fail to collect at least 1% of rebates owed, resulting in $218,829 going unclaimed every year. On the other hand, distributors using dedicated rebate management software typically earn 1.82% more rebates — an extra $182,000 on every $10m rebate income.  

Managing Rebates Effectively

One of the few things holding businesses back from making use of rebates is their perceived complexity and time commitment. Busy teams simply don’t have room in their schedules or budgets to commit significant manpower to rebate management. Fortunately, you can now choose a rebate management software to keep track of your rebates for you, allowing your team to focus their attention on what really matters. In fact, we’ve found that manufacturers using rebate management software to automate month-end calculations typically spend 35% less time on month-end processes.

Rebates are a mutually beneficial opportunity for collaboration and synergy, but there is room for manufacturers and distributors to work together with greater transparency to form stronger trading relationships. 46% of manufacturers believe that better awareness of their trading program from their trading partner would improve the effectiveness of their rebate program, while 75% of distributors report that knowing rebate amounts would influence their support of a manufacturer.  It’s clear that sharing rebate data openly supports stronger partnerships, and with an automated and collaborative rebate management software like Enable, you can build trusted trading relationships like never before.

Interested in learning more about how manufacturers and distributors are using their rebates? Check out our 2022 State of Volume Rebates reports for both manufacturers and distributors.

Lane Ledesma

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