Overview of rebates

Learn about the general concept of rebates and how multiple teams in your organization might use rebate programs.

A rebate is a form of price adjustment. Whereas a discount is a common price reduction applied at the time of sale, a rebate is a refund of the purchase price that is applied after the sale is complete. Rebates are typically limited to sales that satisfy a value or quantity requirement within a specified period.

If the concept of rebates is new to you, think about your personal life to see if there’s something similar. For example, you might have a loyalty card for purchases in a store and after you spend over $100, you get a voucher for $10 off your next purchase. That offer is similar to a rebate. It’s a way for the store to get you to spend more money without lowering their prices. You are happy because your next purchase will cost you less.

Different types of rebates

There are two types of rebates: payable and receivable. Some organizations engage in rebate programs for both categories but most typically deal with one type.

For example, in the case of a supply chain, the manufacturing company might offer rebates to their customers, the distributors. Those rebates are payable from the manufacturer’s perspective and receivable from the distributors’ perspective. Then each distributor might offer rebates to their customers, the suppliers.

Payable rebates

A payable rebate, also known as a customer rebate, is one you pay to your customers. It’s money you give back to a customer after they purchase your products. Many manufacturers use rebates to drive the sale of certain products and reward their customers when they purchase more, by offering them better margins.

In Phocas, payable rebates are driven off a Sales database.

Receivable rebates

A receivable rebate, also known as a vendor rebate, is one you receive from a manufacturer, supplier, or vendor. It’s money you get back after purchasing products. Distributors often rely on rebates to reduce costs and they consider a rebate part of their overall revenue.

In Phocas, receivable rebates are driven off a Purchases database.

Use of rebates across an organization

Whereas you might be tasked with managing the rebate programs in your Phocas site, multiple individuals and teams in your organization might use those rebate programs for different reasons:

Sales Manager: Drive sales growth

• Offer rebates as an incentive to buy more of the same item, which results in increased revenue. See what quantity a customer bought last year and offer a rebate to encourage them to buy more this year.

• Identify customers who aren't buying certain products and offer them a rebate to encourage them to buy the other products. Strategically use rebates to target products that they're not buying.

Marketing Manager: Build customer loyalty and reduce churn

• Offer rebates to existing customers to encourage them to stick with you. Customers are less likely to go to another supplier when they are already in an established rebate program.

• Use rebates as part of the marketing content to attract new customers.

Pricing Manager: Maintain price stability and integrity

• Use rebates as part of the overall pricing strategy, where you maintain a consistent price rather than managing a lot of customers with different pricing for different products. You also reduce the need to lower the selling price to increase revenue.

• Offer customers lower prices in the form of rebates rather than discounts. If they buy a higher quantity of products based on your rebate rules, they ultimately benefit from a lower price. Without you having to lower your sales price.

Purchasing Manager: Increase profit margins by reducing the cost of purchases

• Engage in rebate programs to build collaborative relationships with suppliers where you can negotiate to buy products at an overall lower cost.

• Use rebates to provide a metric for strategic purchasing decisions.

Chief Financial Officer: Align receivable rebates (purchasing) and payable rebates (sales) to increase profitability and financial stability

• Compare the impact of the receivable and payable rebate programs to see how they align with the business's goals. Balance both sides of the business; are receivable rebates growing revenue and payable rebates reducing costs as expected?

• Analyze the output of the rebate programs and use the results to inform strategic decisions.

Phocas Rebates allows you to manage complex rebate agreements and calculate the rebate amounts to support the success of rebate programs and enable interested parties to create effective strategic plans.