Backend Rebate Calculation, Papers of Retail Marketing

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Top 10 Distributor

Back End Credit (BECs)

Considerations

A Must-Have Foundation To Grow with Distributors

E B O O K :

Back-End Crediting Systems or BECS (a.k.a. Ship & Debit Programs), provide a foundational concept for scaling business through distributors. Fundamentally, as a vendor, you want your distributors to stock and increase availability of your products and offers to partners who buy from them. Distributors on the other hand, will hold inventory confidently if they know that the product will sell at the price they bought it from the vendor, plus a margin for themselves, while still being attractive to target partners (and ultimately end-user customers). All good so far. However, the moment you, as the vendor, want to vary the price in the market you have a problem. Your distributors have typically already paid for the inventory they have and if you want to lower the price, say for example, for a short-term promotion, they can only get that promotional price if they buy more inventory at the new price (or, worse still, sell at a lower margin or loss to compete with other distributors selling at the new lower price). Introduction Visit us at www.channelmechanics.com

TOP 10 CONSIDERATIONS At the Heart of a Good BECS Model

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Consistent Pricing to all distributors within a given market. Ideally, all distributors will be buying off the same price list with the same discount. This ensures a level playing field for them to compete for partner or reseller business but also allows the operational aspects of BECs to be more easily managed. If you want to adjust for the different value different distributors provide there are other mechanisms and incentives to manage this, but having them all purchasing at a consistent price is highly desirable. Consistent Pricing Data discipline reduces pain in the process. Well structured product & reseller data (including list price and buy price) with intuitive hierarchies and change management processes (updates, removals and additions) is key to ensuring distributors can synchronize their data to your own. In addition, the mechanisms to supply key data to the distributor must be robust and file transfers easy and predictable for the distributor. Furthermore, the price adjustments, for whichever form of adjustment, must be communicated clearly – which products, which dates, what price (or incremental discount), for how long, into which geographies and into which partner communities. These are effectively the rules of entitlement and eligibility and are critical for the distributor to know, so they are able to offer the adjustment to the market and claim the BEC from the vendor. Typically, these adjustments will have identifiers such as promotion codes, program names, deal identifiers and so forth, to link the rules of the adjustment to the claim. (^01 02) Data Discipline

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Claim Turnaround Many vendors seem to forget that they are ‘making whole’ the distributor and begin to treat the crediting process as they would a supplier – delaying payment and not resolving disputes. Distributors often see themselves as acting like a bank because of the large amounts typically involved that have not been validated or credited. It is recommended that firstly, there is a Service Level Agreement (ideally in weeks, but certainly no more than a month) between when a claim is received to when it is paid out (credited). Secondly, the vendor meets (virtually at least) with the distributor, at least monthly, to ensure any disputes or process issues are resolved quickly. Financial Considerations 05 06 Measuring and managing back-end credits needs additional analysis and review by the vendor’s finance team. There is a flow of credits that are responding to price adjustments being executed through their distributors. Some are short-term, others may be one-off (for example price protection), while others are harder to quantify as the promotion or program has only recently been introduced. There is a need for a monthly review of the flow, status and nature of each of these to ensure that liabilities are accrued for and forecasted appropriately. As mentioned earlier, the numbers involved are substantial, so understanding them and making sure they are echoed in your financials is critical to avoiding unwanted surprises.

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Sales Commission Depending on the level of price adjustments, vendors may wish to assign the credits back into the commission process and adjust quotas accordingly. It is worth thinking this through before setting up your BECS, as there may be implications for timings and quotas setting. Back-to-Back Orders vs Back End Credits 07 08 Back-end credits are clearly most relevant for stockable items such as physical products. However, some products may need to be configured by the vendor before the distributor can complete the sale (and typically the price is already known) or may involve software/software licenses which can be ordered on-demand by the distributor. In both cases, you may not wish to include these types of transactions as back-end credits. Again, think this through. If these types of offer represent a small percentage of your business through distribution, it may be operationally more practical to use back-end credits rather than utilizing a mixed model.

Conclusion Much is to be gained for vendor market coverage and distributor satisfaction by putting in place a comprehensive BECS environment. It can however be complex, and typically needs a 6 to 12 month plan to migrate into a working operating model. The key is to not cut corners – take it seriously, invest appropriately and bring in all the key players (from finance, operations, sales and your business units to IT) to understand the rationale and journey to be made. Your distributors know this world intimately, bring them in from the beginning so they can walk the same path and guide you on best practice. To get the most out of your distribution go-to-market model investing in BECs will move the needle for you, your distributors and ultimately your partners, allowing your pricing and sales programs to be executed seamlessly into the marketplace.

About Channel Mechanics Channel Mechanics is an award winning Enterprise Software as a Service (SaaS) provider. Our cloud-based Channel Incentive Program Management (CIPM) platform, gives customers the tools, data and insights to execute great sales ideas. Founded in 2011, our mission is to transform channel program execution...design, deploy, track, evaluate and change offers, promotions, sales programs and incentives in real-time. Rapidly deploy programs with precision targeting and have real-time visibility into ROI. Curious? Please get in touch with any queries we can help with: US: +1 (855) 637 8820 Europe: +353 (0) 91 394488 Australia: +61 (0) 404 835 176