Most distributors fail to claim all rebate due, leaving millions of dollars on the table each year. Here are five ways to get more from your supplier agreements.
Thanksgiving is a time for catching up with family, eating way too much, and forgetting about work for a couple of days. Which is why we’ve chosen this Thanksgiving holiday to bring you possibly the most important business blog you’ve ever read.
We’ve compiled five ways your wholesale distribution business can increase revenue and margin—and they’re all to do with how you manage your supplier rebate agreements.
If your business is like the 57% of U.S. distributors that consistently leave rebate revenue on the table, you’ll be ‘giving thanks’ for this seasonal advice for years to come.
So don’t let your rebate revenue get gobbled up—read our five tips and start seeing more value from your trading agreements.
#1 Be smarter about rebate thresholds
Strategic management of rebate thresholds can generate millions of additional dollars in revenue, yet few distributors pay rebate thresholds the attention they deserve.
Imagine you have two suppliers of a similar product. Supplier A offers 2% rebate on purchase volume of $1-5m and 4% on volume of $5m+. Supplier B only offers 1% on volume of $1-5m but 5% on volume of $5m+.
At the start of the year, your forecasted spend on that product is $5.2m. You therefore plan to buy everything from Supplier B, as the rebate is higher on spend of over $5m.
However, halfway through the year, and having already spent $2m with Supplier B, you revise your forecast for that product down to $4.5m. You now won’t hit the $5m threshold with Supplier B, as you’ll only be spending $4.5m.
The smart thing to do is to switch immediately to Supplier A, as they offer a higher rebate for purchases of up to $5m. But if your business doesn’t monitor purchases against agreed rebate thresholds, it might continue to spend with Supplier B, losing $35,000 in the process.
Spend with Supplier A
Spend with Supplier B
Even this simple example shows how significant the differences can be. Multiply by hundreds of suppliers and it’s easy to see how millions of dollars can be – and often are – missed.
#2 Keep close track of trading agreements
Despite rebates being a highly valuable potential source of revenue, many distributors don’t keep close track of the deals they’ve struck.
Agreements are often paper documents, signed by both sides and then filed away and forgotten. When that happens, rebate can go unclaimed because nobody realizes the company is eligible to claim it.
Sometimes, agreements are entered into finance systems, but important variables (like rebate thresholds) are missed because the ERP system can’t handle the fine detail. Without a rebate accountant to manually track purchase and sales volumes against complex agreements, a huge amount of rebate can go unclaimed.
Agreements can also work against each other if not properly managed. For example, the distributor might negotiate a special pricing agreement for a one-off customer project, which then disqualifies the purchased products from being eligible for rebate. If the rebate was potentially worth more than the SPA, the distributor has lost out.
#3 Pay attention to SKUs and product groupings
Inaccurate product grouping is another big contributor to unclaimed rebate. A supplier might offer a volume rebate on “sink fixtures”, but if the distributor accidentally leaves some relevant SKUs outside of this grouping, they won’t be included in rebate claims.
The same applies to miscoded or catch-all SKUs. This excellent article by MDM points out that sales teams often code products sold as “Other” or “Special” to save time, meaning those sales volumes get left out of rebate calculations. Mapping SKUs more closely to rebate agreements can help you claim everything you’re due.
#4 Align your purchasing, sales and finance teams
Communications breakdowns and siloed operations are the cause of many rebate dollars going unclaimed.
Purchasing may strike a deal with a supplier, but the terms of the agreement aren’t effectively communicated to Finance, so they’re wrongly entered into the ERP system or rebate-tracking spreadsheet. Often, rebate terms aren’t communicated to sales teams, so they’re not incentivized to use the correct SKUs or meet rebate thresholds. Sales may pursue their own SPAs for customer projects, undermining existing rebate agreements.
Getting everyone on the same page around rebate strategy will maximize the amount the business can reclaim.
#5 Don’t rely on supplier data
There’s no doubt about it—keeping track of hundreds of rebate agreements across a large supplier base is tough, especially if you’re trying to do it in spreadsheets. That’s why many distributors use purchase data from suppliers as a guide to what they can claim.
But suppliers often have the same kinds of tracking issues we’ve highlighted in this blog, meaning their data isn’t always accurate. Plus they aren’t always motivated to return the maximum amount of rebate to their distributors (something we’re on a mission to change, as we believe everyone wins when suppliers and distributors work together).
That’s why it’s essential for distributors to keep close track of agreements made and rebate due—and ensure that none of it gets missed.
Get the complete supplier rebate management guide
Tightening up rebate management can deliver many quick wins—and by acting on the five points covered in this blog, your wholesale distribution business will start seeing revenue and margin benefits almost immediately.
But there are many long-term gains, too—from stronger supplier relationships to the ability to offer attractive pricing and more value-added services to customers.
For a more in-depth look at the benefits of improved supplier rebate management, download our guide Why the Supplier Rebate Model is Broken – And How to Fix It. Or if you’re ready to talk about using our DealTrack rebate management software to maximize the value of your trading agreements, please do get in touch.