In B2B model, rebates are offered to the buyer when the buyer purchases a specific volume of goods within a specified time. For example, a pharmaceutical store sells over-the-counter medicine purchases in bulk pharmaceutical products from a supplier. Now the supplier can offer the store a rebate wherein the buyer needs to purchase a specific volume of a particular OTC medicine within a certain period. If the store owner makes the purchase, he will receive the order at a rebate or a percentage of the absolute amount. Supplier rebate tends to be different from a customer rebate because it is calculated as an income stream by the vendor earned from the buyer. Unlike discounts, rebates are given after the payment. In other words, the buyer will get the rebate not on the purchase that he makes but on another order. Supplier rebates tend to be more complex as valid accounts of the purchases need to be maintained, and the rebates have to be applied on subsequent orders. Some of the essential features of supplier rebate are as follows:
Standard rebates are generated from the volume of sales made.
Usually, the software is used to calculate supplier rebates and keep track of the rebates earned. It provides greater visibility to both the vendor and the buyer. In bulk purchases, it becomes necessary to keep a proper account of the volume of purchases made, the accounts settled, and the rebates already acquired. This, in most cases, is made from the volume of sales made. When a supplier offers the standard rate of rebate to the buyer, his objective is to increase sales. Here the rate of the rebate will be increased as the volume of purchase increases. For instance, a store owner places an order that he doubles in the following order; he is likely to rebate when he places an order again. This will ensure that he continues to give an order to the supplier. With the help of a vendor rebate, the supplier can ensure that the sales continue to increase. Standard rebates can help incentivize the buyers to continue to keep purchasing and keep increasing the order amount. The supplier can backtrack this and keep a proper record of the sales made, and rebates are given. This will be considered as an income stream for the buyer.
Growth incentive rebate to help buyers keep track of the growth rate
The rebates offered by the supplier can also help the buyer keep track of the growth rate and the sales made. For example, if a store places an order for a specific volume of a product, then the expectation is that the store owner will successfully sell the items. Subsequently, if he can increase the volume of the same item in the subsequent order, he can sell the product. This is a success not just for the store owner but for the supplier as well. This is important primarily for consumer-facing companies that need the products to be sold to customers. In consumer goods, growth incentive is applicable as it means the product can reach out to the end-user successfully. As a result, the supplier can give an incentive rebate to the buyer to help him keep track of his growth rate. This can also help incentivize the buyer to sell more and help to continue to garner more customers.
Price calculation in supplier rebates
When a supplier offers rebates, it depends on the buyers to calculate the price of the products. Unlike customer rebates, supplier rebates can function in various manners. For example, you can use it to reduce the price of a different product the store owner purchases from the vendor or be used as a source of income. When you do price calculation as a buyer, keeping in mind the rebates, you must keep in mind certain factors. Some of these factors are as follows:
- Vendors often offer rebates on a mix of products. This means the rebates are applicable not on a single product but when you purchase a set of products. In addition, sometimes, the rebates can be used only when the purchase has been completed. This is because also the products have to be shipped and delivered. Hence, you will be calculating the price of the products on the entire payment paid, and the rebate will be calculated only when you make the subsequent purchase.
- When it comes to central distribution logistics, the supplier often does not consider the cost of delivering the products to the buyer’s store. The rebate will not cover these expenses. You will have to consider all of these in the cost of purchasing the items. Therefore, the rebate will only be in the form of a subsequent discount or a voucher that you can use in the subsequent purchases. But sometimes the company can agree to ship the products to your store free of charge. You can consider this as a part of the rebate.
From the supplier’s perspective, the buyer is always calculated as a part of the revenue. You can also consider it as an income earned by the buyer from the seller. It is like an incentive or an allowance that incentivizes the buyer to make more purchases from the particular vendor or seller. Thus, it creates a more substantial business relationship between the seller and the buyer.
The supplier rebate has to be calculated and kept account of both by the buyer and the seller to maintain the accounting process. It is more complex because it usually involves bulk purchases, incentives and even involves the sales made to consumers. Often it is essential to keep track of the final sales made to consumers to keep track of rebates that suppliers can give as incentives to make the buyer make more purchases to create a more substantial consumer base. All of this is important in the case of B2B and consumer-facing businesses. With the help of supplier rebates, it is possible to create an incentivized market and competitive market with a more robust revenue stream.
