For many B2B industrial distributors, volume rebates account for most, if not all, of their EBIT. My definition of volume rebates is the rebate paid to distributors when the distributor exceeds certain quarterly or annual manufacture purchase thresholds. Sometimes this is also referred to as Growth Rebates.

There are several Marketing/Buying groups in the marketplace, most If not all of these groups promote and support volume rebates to their distribution members. If you are a member of one of these groups, great, it is a step in the right direction; however, you should not have a hands-off approach to managing your rebates through these groups. Also, there are volume rebate opportunities that exist outside of these groups.

Managing rebates to realize thousands of dollars in additional NET profit is not necessarily tricky, but it is time-consuming and takes a coordinated effort between management, sales, and marketing.

It starts at the beginning of the year.

  1. Decide which manufacturers to partner with, consider the following;
    1. Market trends
    2. Manufacture dynamics and positioning in the marketplace
    3. Who did you partner with last year
    4. Customer demands
    5. The strategic direction of your business
    6. Previous year volume
    7. Manufacturer/Rep support
  2. Negotiate the terms of the deal (yes, you can negotiate the deal)
  3. If you have a manufacturing deal within a buying group, find out what is essential to the manufacturer and negotiate an additional deal over and above the buying group deal
  4. Make sure you understand “all” the deals within your buying group; some are straight forward others require planning and strategy
  5. Get creative, review any big buys you placed year-end the previous year and negotiate them out of this year’s target
  6. My rule, use the KISS principle, “Keep it simple.” Do not overcomplicate the deal; make sure any agreement you agree too, you can track within your ERP
  7. Negotiate all deals, so they pay back to dollar one, not just on any growth
  8. Develop a financial budget
  9. Assign internal rebate responsibility to a senior member of the team
  10. Put together a cross-discipline committee from purchasing, finance, marketing, senior team member, sales, project sales & pricing to oversee and manage the
    process
  11. Create a platform (spreadsheet) from which all deals can be evaluated and tracked against their individual goals and each other. Make sure you’re spreadsheet can forecast, even just a straight line forecast is better than nothing

Once you decide which manufacturers you are creating rebate plans with, announce the list to EVERYONE within the organization

  1. Assign the marketing team the responsibility of developing a year-long marketing promotional plan that supports the revenue growth of the rebate plans. Marketing will report to the rebate committee monthly on results. Put together SPIFFS for the sales teams
  2. Monthly committee meetings; the role of the committee is as follows

Stage one- (January-April)

  1. Update spreadsheet with YTD numbers, and monthly
  2. Start projecting out the full year, and use your historical norms to feed the projections
  3. Monitor marketing activity to ensure it supports the rebate plans
  4. Send monthly updates to sales on your progress
  5. Make sure your project team is fully aware, as they usually have discretion on where to place through stock small project business
  6. Review like non-rebate manufacturers’ product sales/purchases to ensure you are NOT bleeding sales/purchases away from a rebate vendor

Stage two- (May-September)

  1. Continue doing stage one
  2. Provide vendors with YTD progression
  3. Six months into the plan, using historical projections, if projections point to a shortfall of 20% or more, work to re-negotiate the plan. Make sure you have data
    that substantiates the shortfall IV. Ask vendors for additional “home run” targets, hit a number 10% higher than the target number, and they add .5% back to dollar one
  4. Using different volumes and rebate percentage scenarios, determine how you will reach your stated rebate budget. In other words, do we focus more on vendor A versus vendor B because of rebate percentage or current YTD volume
  5. Redirect sales and or marketing teams if need be
  6. Double down on plans where either your performance has exceeded expectations or the vendor has offered additional incentives

Stage three- (October-December)

  1.  All the above activities
  2. Where it makes sense, and to reach certain purchase thresholds, negotiate Onetime end of year buys, ask for the following:
    1. Ask for unique into the stock cost (please do not give this away; treat as a one-time PO discount, so you do not lower your COGS in your ERP)
    2. Ask for dating, if you are purchasing a 60 or 90-day supply as for 90-days dating
    3. Build additional marketing activities and sales promotions (spiffs) which will result in increased sales activity

Managing your volume rebate programs will result in substantial increased NET profit dollars. No need to add salespeople, trucks, warehouse space, etc., the extra dollars you receive from rebates flow directly to your bottom line. I have spoken to many distributors over the years about this topic; some are perfectly happy to be surprised at the end of the year when they receive the credit memos. They “hope” they are correct, as we all know, hope is NOT a strategy. Others like myself actively work their buying/marketing group programs and programs outside the group to maximize their return. Those distributors realize hundreds of thousands of dollars more than their peers.

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GGroupHAdminGreg
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