Unleashing Profit Potential Through Rebate Automation

The distribution industry traditionally faces low margins in each sale. It is difficult to keep your bottom line healthy without technology-driven approaches to pricing, sales execution, operations and value-added services. The same holds true for your rebate programs. Many distributors are missing out on their total profit potential because they are uncertain how to proceed with rebate management and automation. Automation can make your rebate programs less complex for your employees and your customers while making sure you don’t leave potential profit on the table.

How Rebate Automation Changes the Game

Some distributors count on rebates for as much as 60% of their total margins. But getting the most out of your rebate programs involves a lot of work tracking, calculating, reporting, communicating through sales and marketing and of course collecting on rebates. Automation can help streamline these processes for better collaboration from your supplier through your sales teams down to your customers and end users. Compared to using simple ERP functionality or spreadsheets, rebate management software improves your accuracy, speed and consistency. This drives greater cost savings related to rebate management, but perhaps more importantly it allows you to take advantage of more profit-driving rebates. Rebate automation helps you keep your customers loyal through cost savings while remaining competitive and maximizing your own profits.

A common example involves your approach to pass-through promotions. Pass-through promotions – sometimes called push promotions – are a sales promotion strategy that manufacturers and suppliers use to incentivize their distributor partners to sell more of a particular product or line. These might involve price reductions, special discounts and rebates. The distributor then “passes,” the lower pricing onto the final customer with the goal of stimulating new sales overall. These promotions are a favorite with suppliers and customers alike; however, when managed poorly they can be a margin killer.

When you fail to accurately account for and apply your rebates, pass-through promotions can lead to significant profit loss. First, promotions take time to manage and have associated opportunity costs from missing other sales opportunities. If you don’t carefully manage these promotions, you may not be properly pricing them to your customers. If your price management is also inaccurate, it makes the potential for profit drain even worse. Pricing errors might lead you to overestimate your margins leading – which can lead you to underprice your deals. Or you might underestimate your margins leading to lost sales. Perhaps the worst result is in strained relationships with your suppliers. Your team stops trusting the effectiveness of promotions and your manufacturers start focusing on other distributors with more reliable results.

A One-stop Profit Boost for Pricing and Rebates

One of the biggest issues that distributors face is in managing price and rebate information across multiple systems. In the worst cases, no systems are being used for price optimization or rebate management and spreadsheets are simply passed from team to team. Most distribution ERP systems have basic functionality for pricing and rebates.  For example, if your ERP system has rebate capability, it is usually limited to a particular type of set up, then requires some manual intervention for application and invoicing. Similarly, most ERP systems have basic price matrix capabilities but do not consider advanced optimization around customer segmentation, behavior, rebate levels and other profit areas.

Solutions like Vendavo’s Rebate and Channel Manager make it easy for you to fully integrate your price and rebate management strategy with a more focused approach on profit. In addition to greater efficiency and accuracy, combining your pricing and rebate strategies in one system makes it easier to analyze and automate your processes for more sales growth and profit capture.

Here just a few examples:

1. Maximizing Supplier Rebates: Sales reps are often focused on the effect of pricing on each deal and do not immediately consider back-end margins. Maximizing supplier rebates might mean extending some special pricing to customers to drive costs down across all deals and channels for certain products and brands.
2. Incentive Programs: Incentive programs – from sales contests to customer discounts – can be very effective in driving sales and improving customer satisfaction. But without proper coordination and analysis, they can also cut into your margins. By combining your pricing and rebate automation you can leverage your rebate programs inside of your incentives to attract and retain customers while driving profit at the same time.
3. Competitive Pricing Strategy: Pricing competitively doesn’t mean cutting your prices. That is just a race to the bottom. Competitive pricing is about offering the right price to the right customer at the right time. By combining price optimization with an effectively managed rebate strategy, you can offer competitive pricing while still maintaining profit.
4. Alignment with Sales Goals and Market Conditions: Without rebate management, distributors are missing out on important opportunities to key their sales reps into profit goals around order volume and product launches.

Better Alignment with Your Suppliers

Unfortunately, you often face a ticking clock when it comes to collecting rebates from suppliers. This is because rebates are often tied to milestones around volume, growth, product-mix, product introduction windows, end-of-life windows and more. The intricacies of rebate management can escalate when purchases are diffused across multiple branch locations or conducted through a buying group or other collective. Too many times distributors rely on data from the supplier or manufacturer to calculate rebates and don’t consider the accuracy or inaccuracy of those calculations. Human error always comes into play.

Using automation in your rebate management gives you precision around your rebate calculations using real-time data. Your calculations will benefit from less human error. You can minimize conflicts or challenging discussions between your trading partners giving you more room to discuss marketing expansion and approaches to product growth. You can also easily determine the actual net margin of your rebate programs giving you important data to use for future discussions, pricing agreements and mutually beneficial sales and marketing support. In volatile and disruptive markets, time is of the essence. Rebate automation not only frees up valuable time, it also brings precision, reduces human error, and unlocks profits.