A rebate is a kind of cashback or refund given to the customers against the purchase which acts as an incentive to complete the transaction. Unlike discounts which are allotted before the actual sale, rebates are offered after the sale. It is a form of marketing strategy which is provided to the client to facilitate future transactions.
How does Rebate Work?
A rebate is a form of cashback against the purchase of the goods given to the buyer by the manufacturer or the seller of that respective goods after they sell it. From the sellers’ point of view, it helps them in attracting more buyers for their goods. Sometimes, the buyers lose the receipt of payment which prevents the seller from paying rebate. From the buyer’s point of view, it acts as an incentive or a cashback against their purchases which is a profitProfitThe profit formula evaluates the net gain or loss of an organization in a particular accounting period. It is computed as the difference between the total sales revenue and the overall expenses incurred by the company..
Example of Rebate
Suppose a store named YZ selling widgets is giving a flat 5% rebate on the widgets’ purchase. A buyer Mr. X purchases a widget pricing $10,000. When he purchases that widget, he is provided with a receipt of a 5% instant rebate. The widget price was $10,000, but due to the 5% instant rebate, it costs $9,500, and Mr. X earns a profit of $500 on his purchase.
Let us see what shall be the invoice cost in this case.
Invoice Cost can be calculated as follows –
Invoice Cost = Product Cost- Instant Rebate Amount
- = $10,000- $500
- Invoice Cost = $9,500
- Discount Rebate: It is a guarantee of a reduction in the value of the goods. These are used while calculating the expected costs.
- Target Rebate: It is a type in which there is no actual guarantee of a reduction in the goods’ value. These rebates are not used while calculating the expected costs. Such types are only given by the seller to a buyer when the seller believes that the buyer is eligible.
- Instant Rebate: It is given to the customer immediately without any further delay at the time of purchase.
- Standard Rebate: In this type, the customer has to mail the coupon with the proof of payment or cash receiptCash ReceiptA cash receipt is a small document that works as evidence that the amount of cash received during a transaction involves transferring cash or cash equivalent. The original copy of this receipt is given to the customer, while the seller keeps the other copy for accounting purposes. which is thereafter checked by the store workers, and if the sale proves to be legit the customer is provided with a cashback.
The United States, Connecticut, states the regulations of the rebate in the country according to section 42-110b-19(e). The following are the main regulations –
- Sufficient Time for the Buyers: The buyers with the rebate coupon must be given sufficient time to submit the coupon along with the payment proof.
- Favourable Price: The price offered for the goods should not be the post-rebate price which means the price of the rebate shouldn’t be included in it.
- Flexibility with the Buyer: The seller must be flexible with the buyer, which means the seller can’t be too strict about asking for coupons or proof. Even if the buyer is giving a photocopy of the payment receipt, the seller must accept it.
- It is a kind of sales promotion technique used by the seller to attract more customers to purchase their goods.
- The buyer uses it to get a cashback or incentive against the good purchased.
- It is used to alter the pre-rebate price or actual price of the good in the buyer’s favour.
- Increased Purchasing Power: Helps the customers earn a profit against the goods they have purchased by providing them with cashback or refund, which increases the buyers’ purchasing power.
- Increase in the Sale: Due to the availability of cashback or refund on the purchase, rebate attracts the customers, increasing the sale for the retailer.
- Free Advertisement: It encourages customers to purchase by giving them a fair deal. When a customer gets a fair deal, they don’t keep it to themselves but encourage others to try that helps the retailer in advertising without cost.
This has been a guide to what is a Rebate & its Meaning. Here we discuss how does it work, its types along with an example, uses and benefits. You can learn more about from the following articles –