Understanding Rebates for Sales – How To Handle Them Properly With QCommission
If you’re in the manufacturing or distribution sector, you may be aware of rebates. These are price reduction incentives that sellers give to their clients in order to drive desired customer behaviors and boost profitability. They intend to encourage customer retention, boost profitability and improve sales of certain products. Sales rebates can be broadly classified into two types:
Customer Incentive Rebates
These are price cuts by a business to other businesses (customers) that are focused on growing direct sales for purposes of attaining company objectives. These include:
- Retention rebates – These are price cuts that reward loyalty and seek to ensure business continuity by encouraging long-term trading relationships. Retention rebates are usually paid at the end of the year upon realization of certain conditions. E.g. when a client attains an agreed volume within a specified time.
- Volume rebates – During the buying process, customers use all manner of tactics to get low price quotes from sellers. To curb behaviors such as overpromising, sellers use volume-based rebates in their price quotation to clients. For instance, the seller may come up with tiered price quotation stating that if buying 1-100 units, the price will be $100 per unit, for 101-500 units, the price is $97 per unit, and so on. This leaves the customer with no choice but to order more goods in order to enjoy favorable prices.
- Growth rebates – These are like volume rebates only that there is a condition attached to them. For example, if buyers purchase certain goods above their normal order, they get a predetermined price cut. The main aim of such incentives is to drive the growth of selected lines of products.
- Mix rebates – Mix rebates incorporate best practices in pricing where price cuts are specific to product lines. This allows traders to leverage pricing to drive the growth of a wide range of products.
Channel Management Rebates
Product distributors play a very critical role in the growth of any business. As a way of ensuring the growth of distribution lines, manufacturers can offer special price cuts to customers that they can pass on to end users. Such incentives may include:
- Indirect Customer Rebates – Also known as end-user rebates, these discounts occur when distributors give price cuts to indirect customers who do not have direct billing relationships. These rebates are often given in terms of refunds, usually in the form of checks.
- Ship & Debit Rebates – These discounts are offered off the invoice prices. They are common when a distributor strikes a competitive deal with the end user at a lower price than that quoted by the manufacturer.
- Price Masking Rebate – These work well to shield sellers from undue pressure to lower prices in an open market. Here, suppliers invoice a higher price and use rebates to lower this figure to a lower net amount. However, this practice could be illegal and caution should be exercised while giving such discounts.
Now, the process of managing rebates is not easy as it seems. This becomes complex, especially, where there are multiple systems for managing such incentives. In such situations, conflicts in pricing by sales teams are often and can be misleading to customers. Moreover, when best practices for rebates are not observed, firms can suffer revenue leakage which in turn hurts the company.
Fortunately, there is a solution to fix these shortcomings by having a robust rebate management system such as QCommission. This software automates all manual processes while providing updated rebate tariffs to all users in the company. In addition, it allows you to track the impact of your rebate program on your business. This way, you know what’s working and what needs to be changed. Consequently, you can shelve old and outdated plans and implement new ones that will help you achieve your business objectives.