Does it matter whether you change a products price in the ERP or offer a rebate or off invoice allowance?
How you execute price discounts should be an integrated part of your pricing strategy and makes a big difference to the health of your profit margins.
Managing your discounts properly ensures that the right discount is offered to the right customer for the agreed amount of time.
Changing the list price in your ERP
While changing the list price of a product in your ERP is a quick short-term solution, it can cause major financial headaches later.
As a quick and easy solution for reducing the price for a large customer, changing the list price in your ERP hides the activity in standard customer profit and loss (P&L) reports.
Why is this an issue? Because anything that cannot be analysed, can’t be managed.
Customer-specific changes to the list price rarely have budgets and are prone to being in place longer than intended.
This method of discounting masks the impact of a customer-specific list price.
The pricing action is only visible when viewing the average list price across customers for the same product.
Instead you should be…Using rebates to incentivise your customers
Rebates are a more profitable way to manage the discounts you give to customers. With rebates, the discount incentive is held back until you can verify that the customer qualifies for the discount.
By ensuring the customer has qualified for the rebate, you’re not rewarding a customer that has not stuck to the agreed terms of the rebate.
With rebate management software, you’re also able to ward off unruly retailers who claim bill-back monies owed from an invoice that’s unrelated to the promotions products.
Rebate tracking software can match the rebate expense back to the correct items and time periods for correct historical P&Ls. Meaning you can dispute any deductions, that weren’t owed, much faster.
Offering off invoice allowances to reduce financial risks
Off invoice allowances are the way to go for a clear picture of the discounts offered at the time of sale. With the discount applied at the time the invoice is created, it means that the trade spend is expensed at the time it’s incurred.
So if a customer purchases an agreed amount of a certain product, you can apply the discount straight away with no outstanding liability.
Having promotions management software manage these allowances gives you the ability to control the off invoice discounts you offer and protect your margins. It gives your sales team the tools to achieve sales goals while not letting discounts damage your profits.