Channel Rebates Best Practices
Over the last several decades channel rebates have been a blessing and a curse for most organizations. They are a powerful tool for driving change but can also get complex and difficult to manage. This article discusses best practices for managing channel rebate programs.
Most channel relationships start with a distributor, dealer, retailer and or reseller promising they’ll do high volumes to maximize their discount. At the end of the year, there is usually a gap between that promise and reality. Most of the time, the gap leaves the brand on the short-end of the financial equation, with no beneficial recourse. Volume incentives done in the form of channel rebates take the promise out of the equation and eliminate the gap.
Channel rebates ensure that the volume the dealer delivers and the ultimate discount they receive are in balance. Channel Rebates can be used to achieve many different goals. Some of the common uses are incremental growth, a change in product mix, supporting product launches or inventory closeouts, retaining resellers and customers, or even masking a price reduction from the end consumer.
The following are nine channel rebates best practices that will enable you to achieve your revenue goals and not fall victim to an unmanageable program.
Establish a clear goal and measurement method
Volume rebates can be used for many things, but without a clear strategy, they simply become a larger discount to your channel. If you have a more strategic goal in mind for your program such as incremental growth, how do you ensure that growth is really incremental and over what time period can it be achieved?
A straight forward program that is easy to understand and administer requires the strategy considers past performance over a similar time and season. Conditional logic is then built to support this strategy and a goal is assigned to each dealer. Upon surpassing the goal, a rebate is earned as a “volume discount” on the incremental revenue.
TIP: There are two components for making a straight forward, and successful rebate program. First, a clear goal needs to be established and second, an effective method to measure success is in place.
For more insights on when it’s best to offer volume discounts read this article.
Segment the channel (one size does not fit all)
This brings us to our next best practice for volume rebates; segmenting your channel. If we continue with the example above, you might want to set different goals by channel segment or tier. Or, you might have a different goal for each channel segment.
For example, you might want to focus top performing resellers on moving the latest products, getting the mid-tier to adopt a broader product mix, while just establishing initial revenue with emerging resellers. Volume rebates can be used to achieve all of these goals but different strategies and plans are required for each segment.
TIP: One volume rebate program for all segments of a mature/complex channel is rarely the right solution. Set different goals by channel segment for optimum results.
Avoid channel rebates complexity
A big mistake we see companies make is trying to influence too many behaviors with one program. Programs with too many objectives and rules are difficult to measure and ROI becomes almost impossible to quantify.
Channel rebate programs that become too complex are cumbersome to manage and can create price leakage versus having real channel influence. Rebate programs can also become complex over time. If you run the same channel rebate program for an extended period of time, you’ll attempt to adapt the program to these changes.
Also keep in mind, the more complex the program gets the more it costs to administer. When the variable cost of administering the program goes up, the margin goes down. This is another way volume rebates become margin leakers versus margin drivers.
TIP: Complexity is the enemy of a good channel rebate program. Your channel needs to easily understand the program to enable adoption. In simplest terms, you want them to realize that if they do “X” they get “Y”.
Vary channel incentive tactics
This brings us to the next best practice: keep the program short (no longer than annual and/or ideally shorter). Also, don’t run the same program over and over. You need to vary channel incentives over time or they become an entitlement. When the channel assume volume rebates will always be there, they count on the discount and stop committing to the behavior. When they don’t make the program goal they complain it’s a take away.
Once a volume rebate becomes an entitlement you won’t take it away without a great deal of pain. You need to avoid this happening and make your channel need/desire the incentive dollars. But you also want the behavioral change they are designed to achieve to be lasting.
TIP: Vary channel incentive tactics and avoid running the same program over and over. Don’t let your channel rebates become an entitlement.
Pay volume rebates on the net price
A brand might offer multiple channel incentive programs on the same product or transaction. For this reason, it’s a best practice to pay a volume rebate on the net price. For example, the brand might be offering a BOGO promotion on a product, during a quarter that a volume incentive is also being offered. You want to pay the rebate on the items paid for, not the invoice price of the ones the channel got free.
Resellers also might be eligible for Co-Op funds that accrue at a fixed percentage of the sale. These should also be discounted from the rebate calculation, if possible. Paying on the net price can make a big difference in overall profitability of the program. Like every other aspect of the program, communication is critical to program success.
TIP: Make sure your channel doesn’t get caught by surprise regarding how the rebate will be calculated.
Frequently update data so resellers can track their progress
Keeping resellers aware and engaged in the program is important to the program’s success. The easiest way to do this is to give the reseller a way to track their progress and the money earned by providing regular notifications of activity and monthly program payment status statements.
TIP: Giving resellers a reason to come back and check progress and payment status are the easiest ways to keep them engaged in the program.
Avoid discount + rebate discussions and comparison
A channel rebate is an incentive, not a discount. How you communicate around channel rebates is important. If you’re not careful the channel will begin to assume the program is simply an incremental discount.
To avoid this, you should always keep the conversation about rebates and discounts separate. For example, if the reseller normally gets a 20% discount off the net as their commission and you offer a growth rebate that pays 2% when they’ve sold $X, don’t say you’ll be getting 22% once you achieve $X. This is an easy trap to fall into and the fastest path to making the rebate an entitlement.
TIP: The language you use around volume incentives matters. Don’t fall into the trap of describing them as incremental discounts, always position them as an incremental incentive.
The carrot for the channel is the rebate check that comes when they achieve their goal. It might take several months for the reseller to achieve their goal, and once they do, they’ll expect payment. If you’re slow to pay, expect frustration and dissention in your channel. Also ensure that when payments are scheduled and made, they are visible within program dashboards.
TIP: Make payments, bi-weekly or monthly. And, whatever the program practice, it is important that it is clearly communicated to the channel up front, in program guidelines, FAQs and other communication vehicles.
Use the Power of Channel Analytics
Today’s current incentive platforms do an excellent job of collecting data. From this data, analytics can be derived to help you understand your channel and refine incentive programs and go-to-market strategies. Incentive analytics can help you understand: Which resellers sold which products? When? Where? For how much? What role the incentive program played? How channel rebates impacted buying trends?
With these analytics you’ll be able to make informed decisions about every aspect of your channel programs. You’ll know which behaviors are influenced, when it’s best to run different types of incentive programs, and which programs generate the best return on investment. Using the data enables sales and marketing to act intelligently with their channel incentives budget.
TIP: Develop dashboards so KPIs are clearly visible to brand managers, dealers, and sales people.
For more information see our Volume Rebates Module.