How Effective Rebate Management Drives Distributor Growth

Every distributor understands the importance of boosting revenue and profit. In addition to maintaining the health of the company, profit growth enables distributors to invest in new technologies, expand their product range, and enter new markets. But recent uncertainty hasn’t made it easy to find a path to new profit. Taking a new approach to rebate management can be a low-risk and easy method to add some much-needed revenue growth and profit capture.

We asked Jon Nettles, Director, Rebates & Channel Management at Vendavo, a leader in price, quote, and rebate management solutions for distribution, for advice on tackling some of the most common challenges in managing rebates as well as the benefits of implementing rebate automation technology.

The Benefits of Effective Rebate Management

Distributors and their supplier partners are familiar with how rebates can drive new sales, improve customer loyalty and provide incentives that lead to greater profitability. In simple terms, rebate programs from manufacturers and suppliers provide incentives to distributors that reward special behaviors. A supplier might want to promote new products, reach an increased volume level or reward distributors and end users who stay loyal to their brand through multiple purchases. “Simply offering a rebate raises the visibility of a product or product line with both the distributor and the customer,” says Nettles. “Distributors like the profit incentives and customers like working with distributors who are connected to the brands they carry. It’s a win all around”

The Hidden Costs of Manual Rebate Programs

Yet despite the many benefits that rebate programs offer, they are often forgotten, bypassed or underutilized. “Let’s face it, managing rebates is tough,” says Nettles. “It’s tedious work. You must find someone who enjoys working with accruals, calculation errors, and overpayments. Plus, they’ll need to monitor performance and rebate eligibility.” While most distribution ERP providers offer functionality to track rebates, the software requires some specialized knowledge and is often rudimentary when it comes to optimizing rebate programs. “All the issues you face in managing rebates can spiral out of control through some simple frustrations,” says Nettles. “The resources, effort, and room for error that comes with manual rebate programs cost distributors profits. No one wants to leave money on the table.”

“Talk to any distributor and they will tell you that they love rebate programs but hate the administrative burdens that come along with those programs,” says Nettles. Rebate management can be time consuming and prone to error. “One of the biggest issues distributors face is that there isn’t a single, standardized rebate program that every manufacturer follows. At a basic level you have different types of suppliers, products and uses for those products, seasonality, and demand patterns, so you already have a lot of balls in the air. But each supplier has a different type of behavior they want to incentivize. Do you want to push volume sales, improve product mix, or demonstrate growth with strategic customers? The amount of complexity across your supplier partners is almost infinite.”

This complexity can lead to a loss of consistency and compliance. “If you don’t have a streamlined rebate management process,” says Nettles “then you lose control over supplier rebates which only piles on more administrative hassles.” To be a good partner with your supplier, you want to be able to demonstrate compliance with their legal requirements and mutual contractual obligations. “Managing data and reporting with rebate programs is critical for compliance, but it is incredibly demanding to manually compile eligibility criteria, proof of fulfillment, payout schedules, and tie those back to performance.”

These complexities aren’t just problems on a to-do list. They are more akin to a bad party crasher who causes more trouble as the night goes on. “You can’t just throw more people at your rebates,” says Nettles “because inaccuracy and lack of data lead to many more problems down the line.” The biggest issue is obviously a loss of claims. “Distributors can lose rebate claims if they don’t track them accurately. That means lower profits.” Nettles points out that bad claims management also leads to bad decisions. “If you underestimate the number of rebates you can earn, you might make bad decisions about sales programs or supplier collaboration which lead to more reduced profitability. Without accurate rebate tracking, distributors lack visibility into the true potential of their financial performance. This makes it difficult to identify trends, make informed decisions, and plan.”

Taking Rebates to the Next Level with Automation

The key is to address these challenges with automation. Systems that automate rebate management like Vendavo’s Rebate and Channel Manager provide transparency and improve communication between suppliers, distributors, and sales teams. “Many distributors think about pricing and marketing management when it comes to rebates,” says Nettles “and certainly those are important areas to consider. But great automation allows you to move beyond into greater seals engagement and strategic planning with your suppliers.”

An immediate benefit of automation is in simplifying your process. “Rebate automation is like having your own personal rebate assistant,” says Nettles. “You remain in control as the architect of your programs, but the system makes it easy to create new programs and agreements based on many factors such as volume, total value, growth in particular purchases or sales from multiple locations. This flexibility makes it easy to align your rebate management with your supplier goals.”

How Automated Rebates Unlock Profit Potential

The ability to capture more types of rebates through better management leads to more profit. “Different vendors have different rebate models,” says Nettles, “ranging from percentages, discounts, ship-and-claim, or even end user marketing offers. Automation means none of it will slip through the cracks.”

Another significant advantage of rebate management automation is its ability to identify new product introductions and their associated rebates. “Distributors are often the main method for manufacturers to launch new products,” says Nettles. “You don’t want to miss out on rebate opportunities that you might have otherwise miscategorized in the rush of a new product launch. Automation lets you seize all available opportunities across your product lines.”

Distribution pricing experts are well familiar with the impact of dead net costs on the bottom line. Dead net cost is the actual final cost of a product after you consider all discounts, rebates, and other incentives. This is typically not reflected in the replacement cost or base cost entered into the ERP system. “Precision around cost calculation requires consideration of dead net costs,” says Nettles. “This is a more accurate way to consider the impact on your profitability and just as importantly, it helps you make informed decisions around sales guidelines. Price negotiations, new marketing promotions, volume offers, loss leaders and more are all impacted by the profitability from your rebates and incentives.”

And when it comes to sales execution, automation can close the loop between your rebates, promotions and negotiations so that there is very little revenue leakage. “At the end of the day,” says Nettles, “the goal of any rebate program is to activate your customers. You should be just as concerned about sales growth as you are about increasing product profitability. Automation means that you can transfer the benefits of your promotions effectively to your customers, leading to both higher customer loyalty and higher profits.”

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About Jon Nettles

Jon Nettles is Director of Rebates and Channel Management at Vendavo and has helped many companies improve their pricing and profitability over his career. Jon started his career in the US Army and then went on to become a sales leader for several data, pricing and CPQ firms. At Vendavo, Jon is passionate about using data and automation to give his clients confidence that their rebate and channel programs are growing as effectively as possible.