Decoding the rebate myth and navigating the pros and cons for the Building Materials Industry

Introduction

In the world of building materials, rebates play a huge role across the industry yet can be a mixed bag. So my question is this...are they helpful or harmful?

In this article I'm going to explore the ins and outs of rebates, focusing on how factors like complexity, size, transparency, and strategy play out for both suppliers and customers. Crucially, we'll also touch on the impact on cash flow.

Are rebates helpful or harmful?

Cracking the Rebate Code

Put simply, rebates offer financial incentives, some guaranteed and some leveraged for growth, yet their complexity can be a headache.

For suppliers, managing complex rebate programs can be time-consuming and impact operations, whilst customers may find it tricky to fully benefit from these programs due to confusing terms, especially if they don’t actually know what they are paying for something!

Simplifying rebate structures can make them more effective for everyone.

Size Matters - Finding the Sweet Spot

While offering sizable rebates can attract customers, suppliers need to balance this with profitability and return on investment. Oversized rebates may strain cash flow and hurt the bottom line. On the flip side, customers should weigh up the size of rebates against their buying habits, the long-term health of supplier relationships and the balance between invoice and net costs.

Transparency Builds Trust

Clear communication is key to a healthy rebate system. Suppliers should be transparent about rebate terms, building trust with customers. This also means working together to deliver profitable growth and hitting those agreed incentive targets.

Likewise, transparent rebates help customers know exactly what they're getting and the true profitability of their sales. This clarity supports a strong, trust-filled partnership and aids cash flow planning.

Customers should weigh up the size of rebates against their buying habits, the long-term health of supplier relationships and the balance between invoice and net costs

Focus on What Matters

Rebates can turn toxic if they distract from core business goals, a great example being how easy it is to make a clear commercial decision.

Suppliers should consider aligning rebate programs with their broader strategy, ensuring that they drive the right behaviour.

Customers should ensure rebate-driven decisions align with their procurement strategy and don't jeopardise critical aspects, including good profitable sales and cash flow.

Strategic Thinking

The toxicity of rebates often comes down to strategy. Suppliers should view rebates as tools to achieve specific goals, not just stand-alone deals.

Customers benefit from a strategic approach that considers rebates within the bigger picture, factoring in their impact on category sales and margins and how operations and sales teams are aligned to make great decisions day in day out.

Customers should ensure rebate-driven decisions align with their procurement strategy and don't jeopardise critical aspects, including good profitable sales and cash flow.

Conclusion

Are rebates a help or hindrance? Well, that depends on how you navigate their complexity, size, transparency, and strategy.

For building materials businesses, smart rebate management can and absolutely should support growth. By keeping them simple, transparent, and aligned with overall strategy, businesses can ensure rebates positively impact both sides of the supplier-customer relationship and contribute to healthy cash flow and profitable growth.

About Keith

Keith Wright is an entrepreneur on a mission to positively impact the world of procurement.

Renowned for his strategic approach, he has saved companies millions of pounds during his 30+ year career as a procurement expert.

Keith's focus on value creation has also created significant growth opportunities for his clients. As a trusted business consultant, he has collaborated with many market-leading companies, developing tailor-made procurement solutions aligned with their unique needs and goals.

Having founded K Wright Consultancy in 2021, Keith now works directly with business owners, leaders, entrepreneurs, and investors serious about taking their business to the next level.

In May 2024 he published his first book, The Power of Professional Procurement, a crucial tool for business leaders aiming to overhaul their supply chain and transform their business.