Add cash to the bottom line

If you know where to look and what to ask, there are a variety of ways manufacturers might increase rebate dollars.

by Dave Gordon

The past few years have been tough, and challenges persist. There’s a slow-growth economy, industrial accounts are moving overseas, customers continue to demand price concessions, employment and health care costs continue to rise, distributors are asked to provide more services by end-users and manufacturers, and customers continue to seek lower acquisition costs. The result, reduced profits. What to do?

Is it possible to add to your bottom line while focusing on the top line?

The answer is yes, if you develop a plan that focuses on manufacturers that best support you, from sales and marketing support to financial support.

Develop a rebate plan
If you are like most distributors, your rebate is an important component of your profit plan. Given pricing pressures from customers, channel inefficiencies resulting from high supply chain costs and a stagnant economic environment, rebates keep many distributors in business. In some distribution industries, rebate income represents 1.7 percent to 2.3 percent of sales.

Many manufacturers are reviewing their rebate programs and coming to the conclusion that yesterday’s program does not work today. Why? Yesterday’s program rewarded distributors for existing business, and those that had a growth component now find there is little growth available. The easy share switches have occurred. Distributors represent fewer lines than ever before, having consolidated suppliers for the right reasons. This leaves manufacturers to question, what is the ROI on my rebate program?

Underperformance is especially challenging for manufacturers in marketing/buying groups. The manufacturer pays the group based on the total business, regardless of whether a distributor performs. Better-performing distributors receive the same percentage as their lower-performing brethren.

Determine what’s important
The key to developing your rebate income plan is to understand what’s important to your manufacturers. They’re interested in volume and market share.

Obviously, the more you buy from a manufacturer, the more that manufacturer will support you and be more willing to provide you with rebate opportunities either based on growth or based on your importance to that supplier. This is why national chains earn significantly more rebate income than independents.

Additionally, manufacturers benefit from being able to support fewer distributors in a given marketplace. If you represent a significant percentage of the manufacturer’s business in a given marketplace or market segment, your importance also increases significantly.

Once you understand your key manufacturers’ issues, develop a strategy to address them. Strategies may include additional line conversions or targeted marketing strategies to focus on market segments that are important to them.

Ask manufacturers what they need, what objectives they have in your marketplace, and the services they would like a distributor to perform (or market segment to serve) where others are not serving or underperforming.

As with any good plan, first set your objective. How much rebate income do you want to earn next year? Then, develop the plan to determine how you will earn it.

If you are a member of a marketing/buying group, you know your last year’s rate of return. With this number you can project next year’s rebate income based on anticipated manufacturer purchases.

Next, add in your rebate income from non-group manufacturers.

Review your group’s manufacturers and your performance with them. Are some especially important to you? Is there an opportunity to ask for more based on what is important to them (volume and share)? Some manufacturers will “double dip” based on a distributor’s importance to them and the distributor’s track record (remember, some companies continue to grow in tough times).

Once you have tackled the purchasing aspect of rebate income, consider additional areas of financial support from manufacturers such as marketing, merchandising, training, sales funding and dating.

Developing marketing funds
Marketing funding can have many names:
• Co-op marketing funds
• Market development funds
• Merchandising support
• Manufacturer promotions
• Rep funds
• New product launch support

Each area represents additional funding opportunities to help your company increase its top line while also managing costs.

Co-op marketing. Most distributors understand co-op funds, where distributors earn a percentage of their purchases from the manufacturer and the manufacturer accrues funds to pay for distributor-submitted marketing activities/tools. Programs vary from 50/50 plans to 100 percent supplier-funded plans, and may include a wide array of marketing tools or very defined activities.

These plans are good for funding tactical distributor marketing activities planned throughout the year. During your annual planning with your manufacturer, ask about the co-op program and find out how many dollars will be available in 2004. Then determine your marketing plan with the manufacturer.

Often, as you develop your plan, you’ll come up with ideas that exceed the co-op budget. Rather than reject these ideas, ask for additional funds.

Market Development Funds (MDF). MDF is the fastest segment of marketing funding. Why? Because manufacturers can channel funds to those distributors with a plan for using the funds, and the manufacturer believes the strategy will help them grow the business and achieve significant ROI.

The key to receiving MDF is to develop a marketing plan and presenting it to a select manufacturer or group of manufacturers. Develop the plan, present it, seek their input, project results and ask for their support. Some distributors take the concept another step and guarantee a level of performance.

During a recent distributor/manufacturer marketing conference, one manufacturer admitted to funding telemarketers, salespeople and database marketing development with selected distributors. That made some distributors take notice.

Merchandising support. These are funds used to help counter/merchandising efforts. It is important to keep your counter area updated since it is a reflection of your company (a branding element) and serves as an additional salesperson if merchandised effectively. A little elbow grease and new manufacturer displays will enable you to keep this area performing for you.

Manufacturer promotions. Most manufacturers offer their distributors some type of promotion throughout the year. But distributors often are not aware of the promotions until they are scheduled to start. This creates scheduling problems for the distributor. To alleviate this problem and improve performance, manufacturers should provide at least a 60-day advance notice to their distributors about a promotion. Additionally, during their initial planning session, manufacturer reps should show a promotional planning calendar to the distributor. The calendar should include the dates and the product to be promoted.

Distributors can’t run many concurrent promotions, so focus on those lines that generate the greatest sales and secondarily on those lines that provide the greatest rebate income. If you focus on the top line, the bottom line should follow.

Rep funds. This may be a taboo subject because reps have been significantly squeezed by reduced sales and, in some cases, reduced manufacturer commissions. Sometimes, however, reps have funds to support smaller lines. Some reps receive marketing funds from their manufacturers, while others understand marketing and are willing to invest a few dollars based upon the opportunity and relationship.

Don’t expect reps to provide significant funding, but it could be good for open houses, counter days, sales spiffs or customer training events.

New product launches. Launching a new product requires a significant manufacturer commitment. If you believe the product is right for you, and the manufacturer is willing to make a commitment to you to provide a competitive local advantage, consider developing a strategy specific to the launch, and ask for market development funds to support the new product. Both parties win because the distributor is “first to market” with a new product and the manufacturer gains incremental sales through a focused effort.

Plan to profit
It all starts with a plan.

First you need a 2004 corporate plan, then a sales and marketing plan, followed by a manufacturer strategy inclusive of a rebate plan. Once you have these core elements developed, now is the time to develop manufacturer-specific sales and marketing plans.

Ask your manufacturers many questions, listen to their needs and solicit their input. Manufacturers will invest in those companies that are committed to supporting them and the companies they believe have the best opportunity to help them achieve their objectives in the appropriate marketplace/market segment.

Adding dollars to your bottom line takes planning. If you develop the plan and work it, you will get the planned results.

David Gordon is a principal of Channel Marketing Group Inc. Channel Marketing Group develops sales and marketing strategies for manufacturers and distributors. He can be reached via e-mail at dgordon@channelmkt.com. Register for a monthly newsletter at www.channelmkt.com. 

This article appeared in the November/December 2003 issue of Progressive Distributor. Copyright 2003.

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