The Importance of Rebates in the Electrical Channel
As those in the electrical distribution channel know, rebates have become an integral part of many discussions.
For distributors, in most cases, they have become an expectation, perhaps best defined as a “requirement to do business with them” for many product categories. And a significant profit enhancer.
For manufacturers, they are a built-in cost but many recognize that they are a required sales tool to open a distributor and can significantly accelerate sales.
Rebates have been prevalent in the electrical distribution industry since the 1960’s when the forebearers of IMARK started the first “buying group” in the industry. The goal then was to help independent distributors compete with national chains by pooling their purchases, helping selected manufacturers increase their sales (and hence the purchases from these distributors) while strengthening relationships.
The benefit of rebates remains … a tool for retaining and growing sales.
Importance of Rebates
But rebates have become more pervasive, and critical, to the success of electrical distributors.
According to the 2021 NAED PAR report, distributor profit before taxes ranges from 3.5-6.3% with the average being 4%.
- Rebates, as a % of sales, are 1.4-2.2% with the average being 1.8%
- As a percent of distributor purchases, they range from 1.7-2.6% with the average being 2.3%
Before manufacturers get excited and think they can reduce their rebates to meet these averages, recognize that distributors purchase from a wide array of suppliers … and many are incidental suppliers (ad hoc / project-specific purchases or from small manufacturers) and hence earn no rebate. Further, many industrial and utility suppliers pay no rebate.
This means that rebates can represent, on average, 27% of a distributor’s profit before taxes!
Rebates can be strategic if they are well negotiated, well managed and if the distributor has the ability to deliver on their commitments (meaning management, or purchasing, talks to sales and marketing to generate preference for a manufacturer … in sales activity or marketing support.)
A unique dynamic in the electrical industry is that little, if any, rebate information is shared with branch managers and salespeople so the ability to influence an order at the point of sale is negligible. Further, rarely is the manufacturer sales organization exposed to the deals established between the factory and the distributor.
The marketing groups, and purchasing departments within national chains, have provided an admirable service in administering many deals for their organizations. Given that the marketing groups each represent about 100-125 manufacturers / brands, this is a significant benefit for distributors (given that distributors probably purchase from 50-75 of these in a given year.)
The question becomes, how to effectively manage the remainder of the rebate agreements with other suppliers? Or the “double / triple dip” deals with marketing group suppliers?
State of Rebates
Many know that Enable, a rebate management company, recently created a relationship with IDEA and has increased its visibility in the industry. Now they want to better understand the state of rebates in the industry from a distributor AND manufacturer viewpoint.
Enable has commissioned Channel Marketing Group to conduct this research. We’ve developed a short, anonymous and confidential, survey to gain insights into the importance of rebates to your organization (even at the branch / district level) and how rebates are managed and communicated. We are not requesting any information about your rebate programs.
The survey takes 3-4 minutes to complete. It is open to both distributors and manufacturers.
In appreciation of your input, you can:
- Register for a drawing for one of thirteen Amazon gift certificates ranging from $75-250
- Receive a free copy of the white paper that will be written.
Additionally, for every response, Enable will donate funds to plant 10 trees via One Tree Planted.
Rebates have been important to distributors to improve their profitability and as a sales tool for manufacturers. This research will help provide further insights into how integral they are to the channel and how companies can improve the effectiveness of them.
How important is rebates to your company? Do they influence buying / selling?