It's amazing to think that in 2013, many companies—huge enterprise organizations even—manually manage their rebate processes. This lack of automation leads to inefficient use of resources and potentially significant errors. Moreover, while many companies know they have a problem, it's often unclear who is responsible for initiating an improved process.
Rebates are difficult to manage, and, in most organizations, this task is decentralized with little oversight. Even those companies with centralized rebate management struggle to understand its value and profitability.
When asked to quantify the profitability of a rebate program, the biggest barrier is knowing where to begin. Data is located in disparate areas and functions in most organizations, which makes it a challenge to collect and properly analyze. Managing the off-invoice discounts and then considering the on-invoice discounting process leaves many companies at a loss.
At this point, many organizations realize just how poorly their rebates have been managed. What's more, they realize their programs don't create the preferred impact: rewarding desired customer behavior. Inadequate rebate programs cause more than just headaches. The fact is, the less control an organization has over its rebate process, the higher the likelihood it will find preventable lost profits due to overdiscounting.
So what should a company do to move its rebate program out of the Stone Age and into the 21st century? Here are three simple steps to begin:
Complex rebates lead to challenges when measuring the program's impact. Growth rebates—for example, a customer that expands revenue by 5 percent receives a 1 percent rebate on all revenue—have become complicated, with convoluted conditions and multi-unit business or product lines, and are generally scaled to meet certain volume criteria. This can lead to situations when even the sales rep who developed the rebate program is uncertain of its terms. Above all, it's imperative to clearly define rebate terms so that both the company and its customers are on the same page.
Many companies offer an array of rebates—with some that are quite imaginative and come at a cost. A pool of rebates is not the way to protect profit margins and drive preferred outcomes. Sales teams might argue that the multiple one-off rebate scenarios help bring prospects to the buying table, which can be true. The key is for organizations to work with the sales team to evaluate the types of rebates that have been successful in the past, and will most likely be effective in the future. Using this insight, a standard rebate program can be established and used company-wide.
Once the rebates are standardized and simplified, the next step is to create a central repository. Having all rebate variations in a single location may shine a light on where the current process is broken. But be cautious. No enterprise software can manage an out-of-control process. When processes are not orderly, the collection, tracking, and management will still be manual, which raises the question of sustainability. The hint here: Master step one and two before getting down to three.
While rebates may sometimes feel like a necessary evil and will likely never disappear, they do need to be properly managed. If an organization successfully standardizes rebates and removes some of the complexity, it puts itself in a far better position to create a sustainable, repeatable rebate process that aligns with corporate goals. By doing so, organizations gain a competitive advantage that enables them to outperform their competition both today and tomorrow.
Phil Holladay is the senior strategic consultant at PROS Pricing.