Regardless of whether you’re a business owner or a sales representative, you need some way to retain existing customers, and grow your sales at new customer accounts. Growing existing customer accounts, improving customer retention, and at the same time having the information you need to secure new customers, is the ultimate goal. Well, there is one program that not only allows you to accomplish this, but also forces customers to provide you with real time market pricing and competitive information.
In using this program, your customer will provide you with the market pricing you need to secure new business, and will always give you the right of last refusal. So, what is this customer reward program?
The Back-End Rebate Program: The Ultimate Reward Program
The back-end rebate program is a simple, non-contractual, customer reward program that encourages your customer to continue to purchase from your company. It is the ultimate customer retention plan. The more they purchase, the bigger their reward. Should they receive a competitive offer from your competition, most customers will immediately call you to discuss the offer first and give you the option of matching the pricing, or choosing not to. Either way, the program provides you with real time market pricing information, the right of last refusal, puts you in the driver’s seat, and ultimately, protects your margins. So, how does this program work?
- Committed Volume: Your customer will provide you with a semi-annual, or yearly volume requirement.
- Insist on Volume Threshold: You will base the program on a volume threshold that the customer must meet during the time of the program. The key is that the volume must be attainable by your customer, but so difficult that it might not be attained.
- Establish Customer Bank: You will provide a per/unit rebate amount that will go into the customer’s “bank” and will be paid at the end of the rebate program provided they attain their volume threshold.
- Provides Market Data: Should the customer receive a competitive price from your competition, they will call you immediately because they want to both 1) keep their accrued rebate, and 2) get the new price. This provides your company with the real time market pricing information you need for new customer bids and puts you in the driver’s seat.
- Customer Buy-in: The program works and works extremely well because the customer is always aware of the rebate they will attain at the end of the program, and will do what it takes to protect that rebate amount.
- Provide Monthly Updates: You want the program to work, so work with your customer to make it a success. Be sure to provide monthly updates or progress reports on how much they have accrued in their program.
- Price Protection: Last, but not least, the program allows you to protect your margins and pricing. Ultimately, you are in the driver’s seat and decide whether to match the competitive offer or walk away. If you don’t match the offer, and your customer leaves the program, you keep the higher gross profit on the previous sale.
In case the table below is hard to read, you can download the attached: Download Customer Reward Program Customer Retention
To summarize the table above, consider that your customer agrees to purchase approximately 10 units per month. Knowing that your customer may have slow periods, you set the rebate threshold at 100 units or 10 months of ordering 10 units/month. Once your customer reaches the 100 unit threshold, they are guaranteed to receive the rebate amount. Any amount, above and beyond 100 units purchased, will be included in the rebate amount and placed in the customer’s “Bank”.
Special Notes: In April, May and June (the highlighted months above) your customer received competitive bids from your competition. In April, your customer already had accrued $3.50 in their “Bank”. The customer not only wants the new price, but wants to keep the rebate in their “Bank”. So, what will they do? Simply put, they’ll call you to discuss the price. They want the best of both worlds. They want the price, but don’t want to lose the rebate amount they have. This happens again in June and September. The more your customer purchases, the more they have invested in the program. This is why this customer retention plan works and works so well.
An Example of How the Program Protects Pricing & Margins
In September, your customer received a competitive offer. At the time, they had accrued $12.00 in their rebate program or "Bank". The competitive offer they received was for $11.40 for the remainder of the year - Sept, Oct, Nov, Dec, for a total of 40 units. The savings would have been going from your pricing of $11.60 to $11.40 or $0.20/Unit X 40 units = $8.00 savings. However, by taking the competitive offer, your customer ends up losing - they lose their $12.00 rebate amount to save $8.00! They lose $4.00 by switching. So, you counter offer to $11.50/Unit and protect your margins and price.
When it comes to improving customer retention, it often involves giving your customers a reason to return. Loyalty is built over time, but is never a one-sided affair. A loyal customer requires your ability to put them front and center in terms of your company's priorities. However, they must always have a reason to come back. The back end rebate program is the perfect tool to improve customer retention and build that loyalty!
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