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How to manage B2B customer rebates — A guide for vendors

Posted by Jean Moncrieff on October 24, 2019 09:07:00

Well-managed customer rebate programs are extremely valuable.

They can help your business win the loyalty of distributors and buying groups, while driving mutual, strategic growth.

Whether you’re new to the world of B2B customer rebates, or you’re an old hand looking to maximize the value of multiple customer rebate programs—you’re in the right place.


Use the links below to leap to the topic you’re most interested in.


  1. What are B2B customer rebates?
  2. Why are these trade agreements so popular?
  3. What does rebate management involve?
  4. How do companies manage multiple rebate programs?
  5. What could rebate management be costing our business?
  6. Are we following rebate management best practice?
  7. What are the key features of customer rebate management software?
  8. Who uses customer rebate management software?
  9. We want to regain control of our customer rebate programs. What’s our first step?

 

1. What are B2B customer rebates?

First, let’s be absolutely clear about what a ‘rebate’ is.

Here’s a solid definition from businessdictionary.com: “The return of a portion of a purchase price by a seller to a buyer, usually on purchase of a specified quantity, or value, of goods within a specified period.”

Wait, what’s the difference between a discount and a rebate?

Discounts are applied to the purchase price before the buyer pays.

OK, got you. So what’s a ‘customer rebate’?

It’s simply a rebate seen from the seller’s point of view. In the eyes of the buyer, the same rebate transaction would be a ‘supplier rebate’. If it helps, you can also think of it as the difference between rebates payable and rebates receivable.

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And what’s a ‘B2B customer rebate’?

They’re rebates a seller pays to another business whether they’re a direct customer, an indirect customer, or a buying group. A single business may have multiple rebate programs – making effective rebate management crucial.

 

2. Why are these trade agreements so popular?

Because, when they’re managed effectively, customer rebates offer huge value to both the seller and the buyer.

  • Sellers get a way to build relationships with distributors and buying groups – providing an effective loyalty incentive
  • Buyers get, at the end of the day, a better price. And for some, the rebate revenue they collect can be the difference between profit and loss
  • Both parties get the benefits of joint business planning – establishing mutual goals and strategic growth plans

Customer rebates are a key contributor to the flourishing Deal Economy, which last year was worth $500bn in the US alone.

3. What does rebate management involve?

Managing customer rebates efficiently means mastering a number of different processes – from setting up, adjusting and renewing agreements, to analyzing margins and profitability.

1. Setting up and renewing customer rebate agreements

It’s typically up to an organization’s sales professionals to negotiate rebate deals with the customers in their portfolio. In many cases, this will mean adapting standard agreements – created by the organization’s commercial analysts – to the individual customer’s needs.

Offered deals should always be:

  • Recorded in a structured and searchable way
  • Made available for internal review and sign-off
  • Shared with the customer for review and sign-off

Designing and agreeing renewal agreements

When the agreement nears the end of its term, the reviewing process begins again. Organizations will often revisit the deal in the light of the year’s sales patterns, and propose tweaking its parameters or renegotiating it entirely.

Making changes within the agreement term

When market conditions change during the term of a customer rebate agreement, it’s often in everyone’s interest to modify the deal there and then, rather than waiting till renewal.

To minimize the risk of dispute later on, it’s vital that both the sellers and buyer understand any changes in detail, and implement them accurately.

Introducing short-term ‘bolt-on’ deals

Sellers often introduce additional rebate deals for a limited period of time – for example, to respond to shifts in customer demand, push a particular product in a particular quarter, or support a new product launch. While these ‘bolt-on’ deals don’t change the underlying customer rebate agreement, they must be recorded, managed and accounted for.

2. Tracking performance – and driving customer behavior

Once a company’s customer rebate deals are in place, the work of monitoring their effectiveness begins.

If both parties are to realize the full benefit of their joint business planning, sales teams need to carefully track customer performance against the customer rebate agreement.

Where necessary, they’ll alert customers to potential shortfalls in sales, and actively drive the behaviors needed make sure rebate volume targets are met.

3. Managing accruals and paying out customer rebates

The seller’s finance department must take a keen interest in customer performance too.

Finance has to accurately accrue for liabilities across all customer rebate deals – which often means studying hundreds of deals, of multiple different types.

When the time comes, Finance must also be able to validate customer claims and settle disagreements – quickly and with appropriate evidence – to keep relationships healthy.

Collecting sales data to manage rebates to indirect customers

In many industries, it’s common for sellers to have customer rebate agreements with businesses which don’t actually buy from them directly. For example, a pharmaceutical company may provide rebates to a veterinary practice, even though they only buy its product through a wholesaler.

In such cases, the seller needs to collect data from a third party (the wholesaler, in the example above) to calculate the rebates the end customer (the veterinary practice) is owed.

Managing relationships with buying groups

When an organization has customer rebate agreements with buying groups, there are extra processes to manage. It needs to:

  • Keep track of changes in buying group membership. Who’s left, who’s joined, and crucially, what does that mean for your rebate liabilities?
  • Report member sales and rebates to the buying group central office
  • Monitor the performance of individual buying group members against individual performance targets
  • Pay rebates to individual buying group members – or to the group, while providing an auditable breakdown how to apportion the rebate revenue

4. True margin analysis and profitability tracking

When it comes to evaluating the profitability of products and customers, it’s easy for customer rebate programs to muddy the water.

A commercial analyst, or finance professional in an equivalent role, will therefore perform true margin analysis – factoring in an organization’s trade agreements to produce an accurate picture of profit and loss.

 

4. How do companies manage multiple rebate programs?

The short answer? In all kinds of ways. Some of which are much more effective than others.

Some businesses use spreadsheets

When they create their first few customer rebate programs, many businesses naturally reach for the tool closest to hand to help them keep track – the trusty spreadsheet.

But this simple solution rapidly becomes nightmarishly complex. As ever more rebate agreements – and flavors of agreement – are added, ever more sheets are needed. It gets easier to make data entry errors. And harder to quickly extract the data that sales teams, finance teams, and commercial teams, customers and regulators all need.

Pros Cons
  • Easy to get started
  • No immediate additional cost
  • Quickly become unmanageable
  • Data integrity is low
  • Security is low
  • Data extraction is hard
  • High admin costs in time

 

Some businesses use ERP systems

As businesses realize their maze of spreadsheets is no longer fit for purpose, many look to see what functionality is available within their existing ERP systems – be they SAP, Oracle or another.
The tools they find will, at least, have been designed with rebate management in mind, providing more features and greater security than a simple spreadsheet. The downside? The tools tend to be fairly basic, and – crucially – only support an extremely limited range of deal types.
This can be a huge problem. Businesses end up using their ERP system for the deals it can handle, and spreadsheets the deals it can’t – making effective rebate management even harder!

Pros Cons
  • No or little immediate additional cost
  • Integrated with existing business systems
  • Greater security for some data
  • Limited support for different deal types
  • Limited functionality
  • Unlikely to completely replace spreadsheets
  • Likely to increase admin complexity
  • Likely to reduce transparency

 

Some businesses use dedicated rebate management software

In the end, many businesses choose to invest in a solution that’s specifically designed to support the customer rebate management process.

This naturally comes with an additional cost, as well as the time needed to find the right solution for your business. The result, however, should be a single solution for all your customer rebate management processes, that simplifies the lives of your sales people, finance team, commercial analysts and customers alike in a heap of ways.

As a company that makes dedicated rebate management software, we were always going to be evangelists for this approach. But even if we didn’t have skin in the game, we like to think – as experts in the field, and rational human beings – we’d feel the same.

Pros Cons
  • Supports more deal types
  • Offers a fuller feature set
  • Simpler auditing and compliance
  • Makes following best practices easier
  • May integrate with your CRM
  • Evaluating solutions take time
  • Requires an additional investment   

 

5. What could poor rebate management be costing our business?

Here’s a sad truth. When managed poorly, customer rebate programs can actually damage the very things they’re meant to promote.

If your rebate and sales data is inaccurate or difficult to share – because it’s held in spreadsheets, or across a number of systems – it’s all too easy to get involved in long, unnecessary disputes with customers when they file their rebate claims. And that undermines the relationships your customer rebate program was designed to strengthen.

Then there’s the time involved with entering data to those various systems. The increased compliance risk. The lack of robust security. The difficulty of reliably forecasting liabilities.

The bottom line? It pays to get rebate management right.

 

6. Are we following rebate management best practice?

We’ve compiled a checklist to help you assess the quality of your customer rebate processes. If you can’t answer yes to all of the below, it’s time to rethink the way you manage customer rebates.

  • We’re making life as easy as possible for our customers
  • We fully understand the ROI for our customer rebates
  • We have customer rebate processes that reflect our brand’s quality aspirations
  • We have confidence in our rebate accounting and financial accruals
  • We can process customer rebate claims quickly

 

7. What are the key features of customer rebate management software?

If you decide to invest in customer rebate management software, you’ll want to find a solution that meets your business’s needs today and tomorrow.

The chances are, this will mean finding a solution that offers:

A structured and formalized deals library

So all your deals are recorded in one secure, searchable, shareable place. A good solution will come with a huge range of deal types already in the system. (Our own DealTrack solution has over 3,000.)

Built-in internal approval processes

So, when necessary, your commercial team or directors can simply sign-in to review and approve deals.

Analysis of proposed deals

When deciding whether or not to approve a deal, your rebate management software should help your commercial team decide whether or not to approve a proposed deal – letting them look at it through the lens of existing sales data.

Online customer to review and sign-off

Allowing customers to access your rebate management solution through a portal will save them time – and help eliminate disputes.

Member rules for buying groups

If you sell to buying groups, you’ll want a solution that lets you factor-in member rules.

A clear audit trail for all customer rebate activities

Helping you rapidly prove compliance with financial regulations, and avoid disputes and fines.

Automatic calculation of rebates

If your solution uses sales data to automatically calculate the earnings customers have accrued, you’ll save your finance department a huge amount of time and stress. (This is absolutely invaluable when you’ve hundreds of customer deals and deal types.)

Automatic forecasting of liabilities

Your solution should also let you use sales data to help you forecast your potential liabilities – while factoring in other important information, such as last year’s sales patterns and expected drivers of demand. (For example, you’re in the ventilation business, you might want to factor in the impact of a forecasted heatwave.)

Analysis of deal performance

Letting you, day-by-day, compare deal performance – against last year and against your forecast.

Analysis of rebate programs at a customer and product level

This will inform your business’s true sales margin analysis, helping answer questions like ‘Should we focus on developing this customer?’ and ‘Which of our products is making the most profit?’

Integration with sales and customer relationship management (CRM) tools

Ideally, your Customer Rebate Management software (e.g. our own DealTrack) will integrate with your Customer Relationship Management solution (e.g. Salesforce). That way, your sales team will be able to click on a customer record in the latter and see the rebate deal that’s in place – or pull up their sales analytics dashboard, and instantly see a customer’s accrued earnings.

Support for other flavors of trade agreement

Most suppliers use customer rebates in conjunction with other deals, such as Special Pricing Agreements (SPA). Having a single system to manage them all can increase management oversight while saving administrative time and effort.

A platform for the future

Customer rebate management technology is moving fast. Whatever solution you choose, you’ll want it to provide a foundation for increasingly smart, automated processes.

 

8. Who uses customer rebate management software?

Manufacturers and suppliers of all kinds. But buying groups use it too – to manage the distribution of rebates to their members.

AD is a dynamic community of independent distributors and manufacturers of construction and industrial products, with collective annual sales in excess of $31bn. It uses DealTrack to manage the distribution of rebate revenue among its 570+ independently owned members.

Read AD’s story

 

9. We want to regain control of our customer rebate programs. What’s our first step?

A great first step is to chat to our experts about your own customer rebate challenges. Their knowledge is equaled only by their enthusiasm, so don’t hesitate to get in touch!

Talk to our experts

If you’re further along the line, and want to see exactly what a customer rebate management solution can do for your business, we’d love to show you.

Book a DealTrack demo