Rebate Management Roadblocks: Top Problems With Solutions
May 25th, 2023 | 6 min. read
By Idrissa Diop
Rebate management can be tough for businesses because rebates are accrued, or collected gradually over time, rather than accounted for upfront in an invoice. Herein lies the problem: as an off-invoice expense, each rebate is managed as a separate transaction, and if mismanaged, your company’s profit margins are what take the biggest hit.
Here at Pricefx, as a leading cloud-native pricing software vendor with rebate management software among our core offerings, we’ve had plenty of customers come to us with complaints around inefficiencies in their rebate management process that have historically caused rifts in their customer relationships and left money on the table.
In this article, we’ll first explain why having well-managed rebates is crucial to any strong pricing strategy and move on to outline the most common problems we’ve seen in rebate management and how to address each.
Why Good Rebate Management is Important
Rebate management is one the hardest elements of pricing to carry out using manual pricing methods. Other pricing tasks are manageable (albeit still challenging) without the use of automated tools; after all, when considering all the touch points on a pricing waterfall, you could still build your list price with Excel, or manage discounts manually, as they’re just static numbers in an invoice. However, as an off-invoice expense, there’s much more in your rebate agreements that can be missed.
Some rebate programs are easier to keep track of than others; performance-driven rebates are among the simplest because they’re based on your sales transactions, which is data that is inherently more transparent. An example would be promising to return 1% if your customer purchases $1,000,000 worth of a product.
Other rebates, such as those based on volume sold (i.e., giving a customer a certain amount off per unit), are more complex, as they’re more dependent on your seller’s reporting than yours (and your ability to control their accuracy by extension). Any use of third-party data requires your understanding of – and trust in – those numbers. The danger in this is that if you don’t understand what you’re looking at, it’s already beyond your control.
With that, let’s take a look at some of the most common roadblocks in rebate management arising from the problems mentioned and how to solve them efficiently using data-driven solutions.
Common Problems in Rebate Management and How to Approach Each
1. Lack of Visibility
Your distributor may inadvertently, or consciously, request a payout that’s more than what’s fair. At worst, you might lose track of your rebate agreement with an end customer to the point of supporting gray market activities; for example, a distributor could take advantage of a volume-based rebate to sell at low prices in several markets outside of the market you have on the books.
One way to track whether the reporting you receive from your customers is accurate is to carry out analysis that addresses uncertainties around whether your rebates are being applied under the agreed circumstances (e.g., whether a distributor is selling more than the total size of the market), or what your customer’s weekly inventory levels and volume sold should look like.
2. Inefficient and Inconsistent Rebate Calculations
Many businesses have entire teams dedicated entirely to claims calculations, which isn’t the best use of their strategic abilities. Not only are manual calculations inefficient, inconsistencies in how each pricing specialist calculates renumeration give way to a larger margin of error, especially when multi-conditional rebate agreements are brought in.
By implementing data-driven systems (provided you have the right data) like our Rebates module to set up rebate templates with their own calculation logic, which will then calculate automatically based on actual performance, your company can ensure more precise and mutually gratifying payments to your customers.
3. Slow Payouts
A long processing period due to manual calculations of accruals or credit notes can be a source of frustration for your customers, and at worst, may jeopardize the customer relationship altogether. What’s more, delayed payouts can inadvertently lessen their effect as an incentive for customers, as that extended period minimizes their impact.
By implementing rebate management software to fully automate the calculation process and payout scheduling, companies can expect to deliver their scheduled payments on time and ensure their customers are incentivized to meet their targets as a result.
4. Lack of Proper Documentation
If you don’t have the means to manage your existing rebates in one location, you’ll likely lose control of those agreements as they progress. Many companies still process their rebates in isolated systems, which means that when it’s time to calculate rebates, information needs to move from one place to another (e.g, from PDF to an Excel spreadsheet). This can lead to duplicates, issues in reconciling documents, mistakes in calculations, or simply wasted time that could be used for other tasks.
In a pricing solution, you can create, store, calculate, and track rebates (not to mention record all internal communication around those rebates) all in one place. By having clear and accessible documentation, you’ll be much better prepared to challenge underperformance – and potentially recover hundreds of thousands of would-be profit losses resulting from these kinds of disputes.
5. Lack of Ownership
The disconnect between the multiple owners of the rebate management process, particularly how these groups interact with the tools involved differently, is a major factor that leads to a lack of ownership around rebate management.
While pricing or sales teams are most directly responsible for handling rebates, they may simultaneously lack access to their own rebate tracking systems. Repurchase agreements, where the rebate conditions are usually outlined, are generally kept within the finance department. Despite having better visibility on rebate performance, finance teams don’t prioritize rebate management in the same way as pricing or sales does.
This splintered access to the right tools for rebate management contributes to a general lack of accountability among both groups for tracking rebates in any consistent way. And when no one is watching, costly misalignments are bound to be missed.
6. Inaccurate Rebate Forecasting
Even the most skilled pricing manager isn’t guaranteed to deliver the right forecasting results every time. And their job is even harder to do without the data to back it up; even though rebate forecasting can technically be managed without data, there’s no way to ensure it’s accurate.
Instead of guessing in the dark, you can use rebate management software to enable automated calculations in real time based on your historical data, so you can make better, more data-driven decisions about your future rebate agreements.
Discover How Rebate Management Software Works for You
As you’ve seen, rebate management involves a lot of moving parts that are difficult to nail down using manual methods alone.
If any of the problems we’ve described in this article resonate with you, it might be time to look into how rebate management software can help your business make more efficient, smarter choices around its rebate agreements.
To start, consider checking out our article below to learn more about the core capabilities offered by a rebate management solution.