When is the last time you covered rebate management in the boardroom?
Rebates should be providing benefits to buyers and suppliers alike; a company purchasing goods wants to be rewarded for their loyalty and the business selling those goods wants repeat sales, so rebates do their amazing thing and reward everyone. Simple! Right?
In theory, yes. Globally, more than £100billion in rebates are transacted, making business to business rebate incentives extremely popular throughout the supply chain and in virtually any industry. However, companies that agree rebate deals and process their own claims and payments need to be aware of an unignorable truth about B2B rebates: inaccurate processing is costing businesses around £8 billion a year in lost revenue.
Using manual tools such as spreadsheets or non-specialist rebate management software, businesses with as little as a 1% error rate in their rebate calculations could experience huge financial losses. The unignorable truth is that yes, rebates are a brilliant way to do business, to strengthen relationships and improve your margins, but when you don’t have a transparent and auditable process with a single source of truth, you could be in trouble down the line. So, that discussion point on rebate management improvements needs to be bumped up the boardroom agenda asap.
The complexity of a typical rebate deal
Why can rebates become so difficult to handle manually? Complex B2B rebate deals, especially when structured by product line, can involve intricate agreements between manufacturers and their distributors or wholesalers. Here’s a breakdown of a hypothetical complex B2B rebate deal by product line to illustrate their complexity:
Imagine a manufacturer of electronic components, ABC Electronics, has several product lines, including microchips, capacitors, and sensors. They want to boost sales of their microchip product line to a select group of distributors, with the goal of gaining a larger market share in this segment.
Components of the Complex B2B Rebate Deal:
Product Line Focus: The primary objective is to increase sales of microchips, so the rebate deal will only apply to purchases within this product line.
Eligible Participants: ABC Electronics selects a group of distributors with whom they have strong relationships and who are strategically positioned in the market. These distributors become the eligible participants in the rebate program.
Rebate Structure: The complexity often lies in the structure of the rebate itself. It can be multi-tiered or based on specific performance metrics. Here’s an example of a multi-tiered rebate structure:
Tier 1: Distributors receive a standard rebate of 2% on all microchip purchases, regardless of the volume.
Tier 2: If a distributor achieves a quarterly sales target of £1 million in microchip sales, they get an additional 1% rebate on all microchip purchases for that quarter.
Tier 3: If a distributor surpasses the £1 million target and reaches £1.5 million, they receive a 2% bonus rebate on the entire quarter’s microchip purchases.
To make things extra complex, there is a specific microchip that provides a 3% rebate, and 5 other specific microchips that are not included in the rebate deal at all.
Quarterly Performance Evaluation: The performance of each distributor is evaluated on a quarterly basis. This involves tracking their microchip sales against the predefined targets.
Rebate Calculations: The complexity arises in calculating the rebates owed to each distributor. These calculations may involve multiple factors, such as sales volume, achieving targets, and bonus percentages.
Payment Terms: ABC Electronics specifies how and when the rebates are paid. It could be quarterly, semi-annually, or annually, depending on the terms negotiated with each distributor, which may all be slightly different.
Documentation and Reporting: To ensure transparency and accuracy, both ABC Electronics and the distributors must maintain detailed records of transactions, sales figures, and rebate calculations. Auditing and reporting mechanisms must be put in place to verify compliance.
Contractual Agreements: Legal agreements outlining the terms and conditions of the rebate deal are drawn up, covering aspects such as dispute resolution, confidentiality, and exclusivity.
Promotional Activities: ABC Electronics may collaborate with distributors to plan joint marketing efforts, trade shows, or promotional campaigns to increase awareness and demand for their microchips.
Communication and Feedback: Regular communication channels are established between ABC Electronics and the distributors to monitor progress, address concerns, and gather feedback on the effectiveness of the rebate program.
Risk Mitigation: Contingency plans may be in place in case sales targets are not met, such as adjustments to rebate tiers or additional support from ABC Electronics.
Market Dynamics: The complexity also arises from the need to continuously monitor market dynamics, competition, and emerging technologies that may affect the microchip product line’s sales
A complex B2B rebate deal by product line involves a combination of strategic planning, performance metrics, financial calculations, legal agreements, and ongoing collaboration to achieve the manufacturer’s sales objectives within a specific product category. And, there must always be a need to balance incentives with profitability while nurturing partnerships with distributors.
Understandably, dealing with all of the above using a manual spreadsheet can quickly become a huge headache for your teams.
Not only is it difficult to actually track all the above stages using a spreadsheet, they also don’t protect you or your data. Individuals can make copies of the master document and keep it on their local drive, maybe share it with another team, and before you know it, there are several versions in the business and nobody knows which one is the most up-to-date. Individuals can change formulas in a spreadsheet, altering the information in hundreds of cells, and skewing the amount a business needs to claim. Wild calculation inaccuracies aren’t difficult to achieve when all it takes is a single decimal point error in a single cell in a huge spreadsheet linked to other documents.
The unignorable truth is that if your business is using spreadsheets to manage rebates, not only are you exposed to these mistakes and potential losses, you do not have a fully auditable process, and you’re also missing opportunities that a dedicated rebate management platform would give you. Without live data analytics, you cannot easily identify trends, gaps and opportunities to make savings or renegotiate deals that aren’t working hard for you.
Where is rebate management on your agenda?
The thing about finance is you can’t just ignore the issue and hope it’ll go away. It’s maths – things HAVE to add up. If you currently use rebates in your business, you’ll know that when it comes to reconciling everything at the end of the month for example, it can be a laborious and painful job, and when you consider the above, it could also be littered with inaccuracies that could cost your business large sums of money unnecessarily. Simply put, if you choose to ignore a rebate process you know is not optimal, it will bite back, it’s just a matter of when.
So how important is it to upgrade your rebate process to a fully automated system?
Introducing new business grade software to your teams can be difficult, but compared to the risks without it, it’s certainly worth adding to the top of the agenda. Incorporating automation into rebate management also aligns with broader goals of operational excellence, risk management, customer and partner satisfaction, and data-driven decision-making.
When presenting a compelling case for automation during your board meeting, you should be outlining the potential benefits, costs, and risks involved in implementing such a system.
To find out how efficient your current process is and how to make improvements, why not take our 2 minute rebate assessment, here.