How to Handle Manufacturer Rebates in the Construction Industry

Manufacturer rebates are essentially sales incentives, used to encourage buyers of building materials to purchase the manufacturer’s products. Rather than offering a special upfront discount at the point of purchase, the builder receives the discount in the form of a rebate at a later date – usually after meeting a volume threshold. 

Why doesn’t the manufacturer simply offer the best price in the first place? For a number of reasons. The first is to protect margins. Rebate programmes ensure that suppliers only give away margins based on actual – rather than promised – volumes purchased. Future volumes are hard to predict in the construction industry, so a volume-based rebate programme means that discounts are only provided for actual volumes sold. 

As such, manufacturer rebates also incentivise greater volume purchases and foster brand loyalty. Indeed, as well as volume-based incentives, manufacturers may offer product mix incentives to encourage individual construction companies or a buying group to make purchases across a wider range of products than they currently do.

Buyers, benefit too, of course. Accessing manufacturer rebate programmes gives purchasing teams the opportunity to drive up margins and get the best possible deal for the construction supplies they need for new home builds.

Good rebate programmes foster win-win relationships between manufacturers and construction companies. However, as powerful a tool as rebates are for strengthening relationships with your suppliers and driving up margins, they are nonetheless complex and difficult to manage – especially when you have multiple agreements in place with multiple manufacturers. 

Once you start participating manufacturer incentive programmes, you’ll soon be in a situation where you’re trying to keep track of a huge variety of rebate agreements at once – all with different rules and conditions. 

For example, volume-based rebate programmes are often tiered, where greater rebates can be accessed for higher volume purchases. Product mix incentives may mean you receive rebates on product X when you purchase product Y. Some rebates are based on meeting growth targets, others on repeat purchases, still more on percentages. 

As a buyer, in order to ensure that you not only receive all rebates owed but that you maximise your revenue and margins from the agreements you have in place, effective rebate management is essential. 

Many organisations attempt to manage their rebate agreements and monitor purchases using spreadsheets – a practice that is inherently open to errors and omissions, not to mention the time and costs associated with constantly updating them. Others simply leave it up their suppliers to conduct all the relevant rebate calculations and inform them of what is owed. 

Neither strategy is optimal and can lead to opportunities to achieve better margins – or even rebate claims themselves – being missed. What, then, is the solution?

A best practice for any rebate agreement is to ensure that all parties – including sellers, buyers, purchasing and finance teams – have access to the relevant data, calculations and agreement details of all deals at all times.

The best way to do this is with rebate management software that centralises all contracts and agreements in the cloud, providing a single source of truth that can be accessed by anyone – at any time – with the right permissions. 

This ensures a clear and transparent audit trail so that evidence is accessible to support all rebate claims and that important purchasing decisions can be made based on hard facts and real-time data. 

The best rebate management software on the market today even tracks purchases made against agreements in real-time, automatically performs calculations and recalculations and sends automated notifications to alert purchasing teams when they’re approaching volume thresholds. 

In addition, rebate management software comes with robust forecasting and deal-modelling features, allowing finance and purchasing teams to plan different rebate scenarios. Using the software, you can undertake “what if” analyses to understand the financial impact of changing factors, such as a rate increase or a change of supplier. This means that you can ensure that you are always accessing the best deal and determine which rebate programmes offer the best return before entering a contract.