Rebate Examples
Before we dive into some examples of rebates, let’s define what a rebate is. Rebates are a retrospective payment from a seller to a buyer, given after the agreed upon incentive is met. The purpose of a rebate is to motivate the buyer to purchase more goods, as well as build customer loyalty. There are multiple different types of rebate incentives sellers will use, which are strategically placed based on the industry, the involved trading partners, and the desired outcome.
The desired outcome of the rebate agreement ultimately determines the type of rebate deal that will be implemented. For example, if a seller’s objective is to promote an individual product launch they would most likely implement a fixed rebate deal. Whereas, if a seller’s objective is to increase the overall volume of products sold, they would most likely implement a growth-based rebate deal.
Types of Rebates
There are two categories the different types of rebates can fall under, vendor rebates and customer rebates.
Vendor rebates are typically used by merchants and distributors. The rebate agreement payments are paid by the supplier. These types of rebates are used when accounts receivable is involved.
Customer rebates are typically used by manufacturers and merchants. The rebate agreement payments are paid to a buyer or customer. These types of rebates are used when accounts payable is involved.
Fixed Rebates
Fixed rebates come in multiple forms. From a fixed monetary amount or a fixed percentage amount, to a fixed volume-based amount or fixed value-based amount. Fixed rebates are typically simple, as they all work somewhat similarly.
For example, a rebate agreement states if a customer purchases 1,000 units of product, then they can claim a 5% rebate. Each unit is $100, so if the buyer purchases 1,000 units, the buyer can claim a rebate reward of $5,000. This would be a volume incentive rebate. Fixed rebates are often tiered, meaning that the 1,000 units purchased can earn you a 5% rebate, but 2,000 units purchased can earn you a 10% rebate.
Growth-Based Rebates
Growth-based rebates can be more complex. Rather than being based on a single purchase, it is typically based on a year-to-year basis. The objective of growth-based rebates is to generate incremental growth.
Let’s say a rebate agreement states that a customer must have a baseline growth of 10% from the previous year to claim a rebate reward of $1,000. If that customer purchased $10,000 worth of product from the seller in year 1, they would need to purchase $15,000 worth of product in year 2 to claim the $1,000 rebate reward. Depending on the program, the rebate reward amount could also be increased each year. In this example, if the customer reaches that same baseline growth of 10% in year 3, the rebate reward could increase to $2,500.
There are so many variations of growth-based rebate programs, but the overall goal is to increase total sales on a year-over-year basis, while simultaneously building customer loyalty to incentivize them to return each year.
Let Group O Help You Design a Rebate Program
In conclusion, rebate agreements come in many different forms. Choosing the best rebate program for a company depends on the desired goal, the products being sold, the customers purchasing the products, and so forth. A type of rebate program that is beneficial for one company, may not be beneficial for another. Implementing the best fitting rebate program will lead to successful sales growth and customer satisfaction.
If you're looking for help in finding the right rebate program for your business, Group O is here to help. We look forward to hearing from you! Call us today at (866) 476-8761.
FAQs
The simplest example of a rebate and most popular is a volume rebate program which rewards trading partners for purchasing higher volumes of a product. Volume incentives — also called tiered incentives or incentive bands — are a great method to help your company increase margins.
What is an example of rebate? ›
The simplest example of a rebate and most popular is a volume rebate program which rewards trading partners for purchasing higher volumes of a product. Volume incentives — also called tiered incentives or incentive bands — are a great method to help your company increase margins.
What is an example of a rebate agreement? ›
For example, a rebate agreement states if a customer purchases 1,000 units of product, then they can claim a 5% rebate. Each unit is $100, so if the buyer purchases 1,000 units, the buyer can claim a rebate reward of $5,000. This would be a volume incentive rebate.
What are the types of rebates? ›
Rebate programs including vendor rebates, customer rebates, volume pricing, retrospective discounts and the like are a way of giving individual customers the 'right price' without driving the price downwards.
What is an example of an instant rebate? ›
For example, the store may advertise a widget for $9.99, but with a $5 instant rebate, the price is $4.99. Or the product may be advertised as $4.99 with a $5 instant rebate. Instant rebates are processed at the time of sale, and so the rebate is provided immediately upon purchase.
Which of the following is example of rebating? ›
In most cases, states consider a cash return of the agent's commission an example of rebating. Some also include gifts or services in exchange for the purchase of an insurance policy, a type of rebating, while other states do not.
What is rebate in one sentence? ›
an amount of money that is returned to you, especially by the government, for example when you have paid too much tax: tax rebate The government plans to give small business owners a tax rebate. SMART Vocabulary: related words and phrases.
What is a rebate payment? ›
A rebate is, by definition, a sum of money that is paid back to you. You'll most commonly have experienced this in the form of a tax rebate, i.e., a situation in which you have paid too much tax and are due a repayment. A tax rebate can be paid automatically, but you may also be required to go through a refund process.
What is an example of a supplier rebate? ›
For example, the supplier could offer a rebate of 5% on the total annual purchases if a buyer agrees to purchase at least $1 million worth of product in a year. If the customer buys $1.2 million worth during the year, they are entitled to a rebate of 5% of $1.2 million, or $60,000.
What is a rebate option? ›
A rebate option is an offer for a cash return on the purchase of a consumer good or service. Rebates can come in many different forms. Flat-rate rebates are automatically subtracted from the purchase price.
The return earned on the collateral, known as the short rebate or stock loan rebate, can meaningfully contribute to a hedge fund's return, particularly for funds with meaningful short portfolio allocations.
What are rebates to customers? ›
A consumer rebate refers to a partial refund or discount that a customer receives after purchasing a product. It's a popular promotional strategy used in indirect sales to incentivize purchases, boost sales volumes, and drive customer loyalty.
What does 100% rebate mean? ›
A 100 percent rebate refers to a situation where the buyer receives a full refund or discount on their purchase. In simple terms, it means getting back every penny you spent on a product or service.
How do you get money from a rebate? ›
Your Recovery Rebate Credit will reduce the amount of any tax you may owe for 2021 or be included in your tax refund, and can be direct deposited into your financial account. You can use a bank account, prepaid debit card or alternative financial products for your direct deposit.
What is a rebate and how does it work? ›
Rebates are a type of retroactive discount offered to customers when they purchase a product or service. To receive some types of rebates, customers may need to do things like sending proof of purchase to a manufacturer. Many different types of businesses offer rebates as incentives for customers.
Is a rebate the same as a refund? ›
Tax rebates are different from tax refunds, as they are issued at any time during the year and are not related to deductions and credits claimed on a return. Some governments provide incentives in the form of rebates for the purchase of hybrid cars that reduce gasoline consumption.
Does rebate mean money back? ›
These words are related in meaning and can be confusing. They all refer to being paid back money that is owed. Rebate means "an amount of money that is paid back to you because you have paid too much or as an incentive for buying something." Here are a couple of examples: We hope to get a big tax rebate this year.
Does rebate mean cash back? ›
A rebate is an upfront discount that gives you cash back after you make a purchase, and typically more quickly than a tax credit.
Before we dive into some examples of rebates, let’s define what a rebate is. Rebates are a retrospective payment from a seller to a buyer, given after the agreed upon incentive is met. The purpose of a rebate is to motivate the buyer to purchase more goods, as well as build customer loyalty. There are multiple different types of rebate incentives sellers will use, which are strategically placed based on the industry, the involved trading partners, and the desired outcome.