Understanding Vendor Rebate Rule Types

Stepped/Standard

This is the simplest vendor rebate rule type and is based on amounts or quantities. Standard/Stepped rebate rule types specify a rebate factor percentage that is based on the defined purchase threshold levels during the rebate agreement life. Usually the higher the threshold, the greater the rebate percentage, thus awarding a greater vendor rebate amount for a supplier who makes large purchases.

For example, a rebate agreement is negotiated with a supplier, which states that:

• Purchases between 0 USD and 100,000 USD receive a 1 percent rebate.

• Purchases between 100,001 USD and 500,000 USD receive a 2 percent rebate.

• Purchases over 500,001 USD receive a 3 percent rebate.

• Rebates will be paid quarterly.

• The method of payment will be by check.

Assume that the purchases for the quarter were 650,000 USD. The rebate at the end of the quarter would be 13,500 USD.

13,500 USD = ((100,000 USD × .01) + (400,000 USD × .02) + (150,000 USD × .03))

Retrospective

Retrospective rebate rule types are based on amounts or quantities. Retrospective rebate rule types specify a rebate factor percentage that is based on the defined purchase threshold levels during the rebate agreement life. Increases in purchased amounts can reach a higher threshold level, which changes the rebate factor for additional purchases as well as all the purchases to date within the rebate agreement life.

For example, a rebate agreement is negotiated with a supplier, which states that:

• Purchases between 0 USD and 100,000 USD receive a 1 percent rebate.

• Purchases between 100,001 USD and 500,000 USD receive a 2 percent rebate retrospectively back to 1 USD.

• Purchases over 500,001 USD receive 3 percent rebate retrospectively back to 1 USD.

• Rebates will be paid quarterly.

Assume that the purchases for the quarter were 650,000 USD. The rebate at the end of the quarter would be 19,500 USD.

19,500 USD = (650,000 USD × .03)

Flat Amount

Flat amount rebate rule types are based on amounts or quantities. Flat rebate rule types specify a flat amount based on the defined purchase threshold levels during the rebate agreement life. Flat rebate amount can be either prorated or not prorated.

For example, a rebate agreement is negotiated with a supplier, which states that:

• Purchases between 0 USD and 100,000 USD receive a 1000 USD rebate, prorated.

• Purchases between 100,001 USD and 200,000 USD receive a 5000 USD rebate, prorated.

• Rebates will be paid quarterly.

Assume that the purchases for the quarter were 150,000 USD. The rebate at the end of the quarter would be 3,500 USD.

3,500 USD = (1,000 USD + 50 percent of 5,000 USD)

This is another example not using prorate option:

• Purchases between 0 USD and 100,000 USD receive a 1000 USD rebate, prorated.

• Purchases between 100,001 USD and 200,000 USD receive a 5000 USD rebate, not prorated.

• Rebates will be paid quarterly.

Assume that the purchases for the quarter were 150,000 USD. The rebate at the end of the quarter would be 6,000 USD.

6,000 USD = (1,000 USD + 5,000 USD)

Growth Bonus

Growth bonus rebate rule types are based on a specified increase in purchases for a specific item or item category. For this rebate rule type, you can define the items, item categories that will be considered for the growth bonus, or both, the target percentage increase or growth that will trigger the rebate, and the purchase amount or quantity for each item or item category that will be the basis to determine the growth percentage. The purchase volume for the current period will be compared to these values to determine whether the growth targets were achieved. You can also define rebate per growth percentage threshold levels.

For example, a rebate agreement is negotiated with a supplier, which states:

• Receive a 2 percent growth bonus on a particular category (A) of products under the condition that the purchasing turnover has increased by 10 percent or more year on year.

• Rebates will be paid quarterly.

Assume that the purchases were:

The rebate at the end of the quarter would be 1,000 USD.

1,000 USD = (50,000 × .02)

Marketing Contribution

Marketing Contribution rebate rule types are based on amounts, with the rebate amount being based on amount or percentage. Unlike the other rebate rules types, the marketing contribution is independent of the purchase transactions. It is a one-time rebate for the entire rebate agreement life.

For example, a contract is negotiated with a supplier for the quarter, which states:

Receive a 1.5 percent marketing contribution on purchases for the previous period.

Assume that the purchases for the previous quarter were 650,000 USD. The rebate at the end of the quarter would be 9,750.00 USD.

9,750 USD = (650,000 USD × .015)

Rebate Agreement Examples

This is an example of a quarterly rebate agreement using retrospective rule with quantity basis and marketing contribution:

A rebate agreement with a supplier contains three items:

Item A: UOM EA

Item B: UOM EA

Item C: UOM CS (CS: case, 1 CS = 4 EA)

The rebate rules for the rebate agreement state:

• Purchases between 0 and 10,000 EA receive a 1 percent rebate.

• Purchases between 10,000 and 50,000 EA receive a 2 percent rebate retrospectively back to 1 EA.

• Purchases over 50,000 EA receive a 3 percent rebate retrospectively back to 1 EA.

• Additionally, we receive a 1 percent marketing contribution on purchases for the same quarter last year.

• Rebates will be paid quarterly.

• Method of payment will be by check.

Assume that the purchases for the same quarter last year were 300,000 USD. The following table illustrates the purchases for the current quarter:

The rebate at the end of the quarter would be 10,200 USD.

10,200 USD = ((360,000 USD × .02) + (300,000 × .01))

This is another example of rebate agreement using retrospective, marketing contribution, and growth bonus rules combined:

• Purchases between 0 USD and 100,000 USD receive a 1 percent rebate.

• Purchases between 100,001 USD and 500,000 USD receive a 2 percent rebate retrospectively back to 1 USD.

• Purchases over 500,001 USD receive a 3 percent rebate retrospectively back to 1 USD.

• Additionally, we receive a 1 percent marketing contribution on purchases for the same quarter in the previous year.

• Also, we receive a 2 percent growth bonus on a particular category (A) of products under the condition that the purchasing turnover has increased by 10 percent or more year on year.

• Rebates will be paid quarterly.

• Method of payment will be by check.

Assume that the purchases for the quarter were 650,000 USD. The purchases for the same quarter last year were 600,000 USD.

The rebate at the end of the quarter would be 26,500 USD.

26,500 USD = (650,000 USD × .03) + (600,000 × .01) + (50,000 × .02)