It’s Time to Make Your Rebate Program Profitable

In today’s economy, many businesses find themselves giving away free services or merchandise in an attempt to close deals. By offering a little something to spice up a deal, sales reps have found this to be incredibly effective in securing transactions. This, of course, has led to markets of all sorts flooding their industries with free allowances.

In fact, it is often uncommon for businesses these days to make any kind of sale without first offering something free of charge. Whether it be a trial version of a service or an accessory to go along with a product, these free offerings entice consumers to make a purchase. Because of all the free offerings, consumers are becoming expectant of ‘something extra’ to go along with every purchase they make.

While offering free products and services is an excellent way to close a deal, these allowances are hurting companies’ bottom lines. Think about it. It’s simple math.

The more you give away for free, the less money you are going to make in the long run. This does not, however, mean that you should eliminate the allowances you offer customers. Instead, you need to be strategic about what you give away. Let’s take a look at five tips for making your incentives more profitable.

Tip #1: Keeping Your Rebates Profitable

The main goal of a rebate is to attract sales. This means you will need to implement a strategic rebate plan that has the ability to bring in more money than what you are losing through the rebate that you offer.

Ultimately, your price concessions should create a profitable sales growth environment, while at the same time not increasing the cost of your sales volume.

To achieve the goal outlined above, you can carry out a profit waterfall analysis; this enables you to calculate the profitability of the rebate you are offering. You will need to assess if the added customer incentive programs you are offering are actually leading to the intended revenue growth you are expecting.

The profit waterfall analysis will give you the ability to use data visualization to reveal insights that can be used to build a successful customer incentive program.

Tip #2: Use Automation to Determine Rebate Profitability

Even though you may want to use your sales team to fill out the appropriate paperwork for determining rebate profitability, this is not efficient. In fact, it’s a large waste of time and valuable resources. More so, it puts your business at risk for any errors that may occur when the calculations are taking place.

A smart alternative to having your sales team do these calculations is to automate them. This is why you will want to give the sales team easy to use automated formulas that they can use to assess incentive profitability potentials. A data visualization needs to be provided for each rebate scenario.  At Incentive Insights, we typically do this for our clients.

Tip #3: Implement Rebate Strategies and Roles

Not just anyone should be in charge of your rebate program. You want a team set in place that has experience in creating rebate programs and that has the ability to focus a large amount of time on adapting the program to meet business and consumer needs. One rule of thumb is that this team needs to create a program that doesn’t ever get customers to the point in which they expect a rebate for every purchase they make. This means that rebates should not be commonplace within your sales strategy.

After a rebate becomes so common, it no longer qualifies as an incentive, and this turns customers away from viewing the rebate as enticing to close a deal, which is the whole reason for offering the rebate to begin with. Another strategy that is a must within a customer incentive program is that each rebate should follow a strict sign-off process. When rebate offerings are not signed off on, you will lose track of how profitable the incentives are.

Tip #4: Ongoing Analysis is Essential

An effective customer incentive program must be analyzed on a regular basis (daily, if possible). As you analyze the effectiveness of your incentives, you will be able to develop a clear picture of which ones are earning a profit and which ones are costing you money. If you notice certain incentives are resonating better with customers than other ones (which you will), then this gives you a good indication of how to adapt your rebate program for further profitability.

It is also of importance that you be aware of how profitable rebate programs can eventually lead to a negative effect on an overall pricing strategy. Because of this, you will need to develop clear lines between the cause and effect of your incentives to keep a negative outcome from occurring. Some causes simply won’t be worth the effect that they bring about, even if a profit is being earned.

Tip #5: Adapt Your Rebate Program Regularly

As your company changes and the consumer landscape evolves, your rebate program will need to be adapted. Fluctuations will become present in the analyses that you perform on your customer incentive program and as these fluctuations become apparent, you will need to shift your rebate strategy so that higher profit potentials can be secured. Regularly updating your strategy means you will need to keep a close eye on your entire business structure.

What is working? What isn’t working? What products are customers most likely to buy? Which products are bringing in the most profit? Can you offer an incentive to boost the sale of your most profitable product/services? Also, remember that if your prices change on a regular basis, then your rebates will need to change as well because this will affect whether or not the incentives are maintaining the ability to earn you more a profit than what they are costing you.

3 Incentive Strategies

Understanding the purpose of an incentive will help you develop an appropriate strategy that correlates with making sure the incentive reaches its full potential. Here’s a quick look at three purposes and their correlating strategies.

1: Know When to Hold the List Price

Some rebates should be offered only when the customer is willing to buy in bulk. And while you may be tempted to offer an incentive if the customer is not willing to buy a certain number of the product being sold, you should know when to hold to the list price. Holding the list price for customers who are unwilling to bump up their order is a great way to maintain your profit margin.

2: Enhance Customer Loyalty

No matter the customer, you want them coming back for future purchases. And ideally, you want these customers to be increasing their purchase size. The larger the order, the more money you make. Because of this, you should create a customer incentive program that includes a retention rebate. For example, you can offer customers the deal of “if you purchase 10 orders within the next 12 months, you get a $200 rebate on the 11th purchase.” This type of incentive programs customers for their loyalty.

3: Secure New Customers

Not only should your customer incentive program focus on retaining your current customers, but it should also entice prospective customers to make a purchase. This is where irresistible incentives should be offered. For example, an incentive of “30% rebate for first-time customers” is a deal that is hard to pass up.

The Takeaway

Creating a successful customer incentive program that actually earns your company a profit rather than takes away from your bottom line can be complex and tricky. With the right analysis tools, however, it becomes possible to get to the bottom of your sales data and develop a plan that works well for your company.