New Research: Rebates Ensure Profitability

In the industrial supply industry, we often talk about “backside dollars”, or rebates, as a necessary part of the business. But are they a strategic asset or just a “tax” on doing business?

Earlier this year we (Channel Marketing Group) conducted research, sponsored by Enable, a leading rebate management reporting system. on volume rebates and are releasing a new research report.

Based on a survey of 153 manufacturers and distributors, the findings confirm that rebates are no longer just tactical concessions and expectations – they are the engines of channel profitability. In fact, for many industrial supply distributors, rebate income represents between 40% and 70% of total net profit. And a review of distributor financials reveals that the percentage increases in reverse correlation to sales performance.

As margins get squeezed in a slow market, the effectiveness of these programs becomes the difference between a “make or break” year. The research suggests that while broad-based programs are easy to understand, they often lead to a “status quo” environment.

This KIS(S) principal, while easy to negotiate and easier for purchasing to negotiate and for accounting / finance to administer, requires less planning and interaction with sales and marketing … the execution elements of a rebate strategy. The “execution elements” are defined as “determining how to sell more and/or adjust the customers purchasing mix.” This execution phase is the strategy element that inevitable requires analysis of sales / purchasing history, an understanding of the competitive environment and the marketplace, and a willingness to affect a change in sales, purchasing, and buying behavior (depending upon the audience.)

The winners in today’s market are those using data-driven, deliberate incentives to create mutual value.

5 Key Takeaways for Distributors

1. Protect Your Bottom Line: Rebates are a primary profit maker; they can represent anywhere from 20% to 90% of a distributor’s profitability depending on the year and market conditions.
2. Audit Your Accuracy: While 57% of partners find accruals easy, nearly 26% of respondents rated their reporting as “unacceptable,” indicating significant profit leakage is likely occurring.
3. Move Beyond “Overall Sales“: Broad strategies often fail to drive specific behavior. The best results come from targeted initiatives based on specific product categories or new SKU launches.
4. Demand Better Data: Larger manufacturers and those in buying groups typically provide better reporting; don’t settle for “poor” visibility from minor vendors that hinders your ability to adjust mid-year.
5. Build a Cross-Functional Team: Rebates shouldn’t live solely in Purchasing. Success requires an executive sponsor and buy-in from Sales and Marketing to ensure the “growth” part of the rebate actually happens.

5Key Takeaways for Manufacturers

1. It’s Not a “Tax“:  Rebates are a strategic investment that enables revenue attainment and captures “share of mind” with distributor sales teams.
2. Protect Market Pricing:  Unlike a COGS reduction—which distributors often pass through to the end-user – rebates help keep market-level pricing higher because they are rarely passed through at the point of sale.
3. Incentivize the Mix: Programs based on shared goals, specifically around high-margin new products (SKUs), deliver the best results for both parties.
4. Leverage Digital Portals: Integration of rebate performance into manufacturer portals is a hallmark of “excellent” reporting and helps regional managers review goals more effectively with partners.
5. Balance Retention and Growth: Follow the “airline” model—reward for existing loyalty from the first dollar, then provide tiered “boosters” for incremental growth.

Are You Ready to Build and Maximize Your Profits?

To fully optimize profitability, organizations must have precise tracking, transparent collaboration, and proactive management to ensure every rebate dollar is measured and aligned with commercial goals.

When asked for his feedback on the report, Mark Gilham, Enable’s Vice President, Head of Global Advisory, shared “This is why Enable Advisory was created. We teach the channel how to create rebates that work for all sides – collaborative, commercial, and effective.” For manufacturers and distributors ready to transform rebates from reactive negotiations into strategic growth levers, Enable’s software and Advisory offering provide the expertise, technology, and partnership to make it happen. Visit enable.com or contact your Enable representative to explore how you can unlock untapped profit and strengthen channel relationships.

Want the report? Contact Channel Marketing Group to receive a free copy of the report.