When it comes to pricing strategies and financial incentives, a volume incentive rebate programme is undoubtedly a best practice in itself. Why? Because if you’re relying solely on upfront discounts to drive volume-based sales, then you’re not protecting your organisation from buyer gaming and overpromising, nor actually incentivising your customers to make higher volume purchases in the first place.
A volume incentive rebate programme should be designed to encourage larger purchases across specified product lines. The incentive you offer essentially means that the more volume the buyer purchases over the course of the deal, the better price per unit they receive. There are a number of benefits to this strategy.
BENEFITS OF VOLUME INCENTIVE REBATE PROGRAMMES
Consider the following scenario. You sell a product that usually costs, say, £100 per unit. A buyer contacts your sales team and wants to buy 1,000 units over a 12-month period and negotiates a discounted price of £94 per unit. Ideally, this deal should work out well and satisfy both buyer and seller – the buyer gets the better price they’re looking for, while the seller can look forward to higher volume sales over the upcoming year.
However, by offering a volume-based discount upfront, the seller is in fact taking a risk that the buyer doesn’t uphold their end of the bargain. The buyer promises to purchase 1,000 units, but only ends up ordering 250. They get the discount, but don’t buy the volume – leaving you, as the seller, out of pocket.
A volume incentive rebate programme solves this problem instantly. With a rebate programme in place, instead of awarding the discount upfront, the buyer pays the full £100 price per unit bought and receives the discount retroactively – as a rebate – only when they’ve crossed the volume threshold of purchasing 1,000 units. This protects you, as the seller, from buyers overpromising and instead rewards customers for actual rather than “promised” behaviour. In other words, your volume incentive rebate programme still ensures that buyers can access a better price per unit than the list price – giving fuel to your sales and marketing strategy and encouraging larger purchase volume – but the risk of non-compliance lies with them.
How Do Volume Incentive Rebate Programmes Work?
As well as protecting against overpromising, a volume incentive rebate programme can also encourage loyalty and customer retention. Volume incentive rebates lock buyers in for the long-term – since they will only receive the rebate once they’ve crossed the volume threshold, the rebate acts as an incentive for them to keep purchasing until they do.
Importantly, in order to drive greater volume purchases, a volume incentive rebate programme should be tiered, with rebate amounts increasing incrementally in line with incremental volume thresholds or incentive targets.
For example, a volume incentive programme might have incentive targets of 100 units, 500 units and 1,000 units. In all cases, you would invoice the buyer at £100 per unit. However, as the buyer crosses each volume threshold, they earn incremental per-unit rebate rates as follows:
So, here, if the total quantity of sales were 600 units, the buyer would qualify for a rebate of £4.00 per unit, or 600 x £4.00 = £2,400. This is an attractive incentive that may have pushed the buyer to purchase an additional 100 or so units to reach the next tier. If the buyer had only purchased 490 units, the rebate earned would have been much smaller – 490 x £2.00 = £980.
This is just a simple example. A volume incentive rebate programme can also be used to encourage buyers and distributers to increase volume across a wider range of products than they currently do. You will of course have more than one product line. As such, your goal might be to incentivise buyers to purchase more lines. To do so, you could create a product mix rebate where the buyer earns rebates on their regular order of product Y on the condition that they purchase product X as well.
Again, pricing should be tiered to encourage greater volume of purchases. For example:
|Sales of Product X||Rebate on Product Y|
Use Rebate Management Software Like e-bate – The Ultimate Rebate Management Solution
Of course, the more rebates you offer and the more buyers you deal with, the more complex your volume incentive rebate programme becomes. It’s crucial, therefore, that you have an adequate system in place for tracking and managing all your rebate agreements and that any deals you negotiate remain profitable for your organisation.
This is where rebate management software comes into play. Rebate management software solutions allow B2B organisations to quickly and easily implement many different kinds of rebates and structure them individually for different buyers. The best tools on the market today offer robust real-time calculation engines and deal modelling features that allow you to understand the impact of any rebate you offer before agreeing it commercially with the buyer.
e-bate can help you do all this and more. Our intuitive rebate management software comes with a built-in calculation engine that enables you to easily calculate all types of rebates and track and analyse all data against those agreements in real-time. In addition, our robust deal modelling features allow you to make rapid assessments of the deals you are negotiating, meaning you can remove the guesswork and understand fully how each tier of your volume incentive rebate deals will impact profit margin.
e-bate is delivered as a SaaS and automates every element of the rebate process, helping companies manage complex pricing schemes and increase revenues and profit while ensuring compliance through a full audit trail and comprehensive approval workflows. e-bate is your single source of all rebate information, providing you with the tools and insights you need to make proactive decisions that drive business value.