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Is a Rebate Program Right for Your Business?

Done right, offering a rebate can mean a boost to your bottom line. Done wrong, and it can mean unhappy customers and lost profits.

Opinions expressed by Entrepreneur contributors are their own.

Stu Sjouwerman couldn't be happier with the rebate program he's established with to offer his company's iHateSpam software. "They sell a couple hundred units per day, and we ship shed-loads of product over there," says Sjouwerman, founder and CEO of Clearwater, Florida-based Sunbelt Software Inc., a provider of Windows tools. "Amazon [benefits because they get] a whole bunch of customers that buy other stuff, so it makes everybody happy."

While Sunbelt is benefiting from this rebate offer, in which customers get iHateSpam for free through a $20 mail-in rebate but Sunbelt still earns money from, Sjouwerman and his team understand rebate programs can have drawbacks. "The reason [to offer] rebates is that they produce volume," says Alex Eckelberry, Sunbelt's president. "But there should be strategic reasons considered, things like being able to monetize the customer base in the future. This is hard cash you're giving out, not a price reduction, so tread carefully with rebates."

Indeed, rebates can take a toll on your bottom line, so "treading carefully" is a must. "Amazon...can afford this kind of thing because they get their customer to buy other stuff," Sjouwerman says. "For us, a rebate program like this would be simply impossible."

If handled improperly, rebate programs can also be customer relations nightmares, say, if a customer receives a rebate late or not at all. Ensure that customers get their rebates easily and in a timely manner, and maintain positive feelings for your company or brand. "Identify a contact person to be responsible for fully understanding the rebate program. This person can serve as both the contact for implementing the program and the customer contact," says Susan Carter, a Minneapolis small-business consultant. "When a customer complains, this person can help to get questions answered and becomes an advocate for the customer rather than a participant in the problem."

When setting up a rebate program, set up specific goals. "It is important for a company to set very clear objectives in order to decide whether to use rebates to motivate consumers to experience their brands," says Claire Rosenzweig, president of Promotion Marketing Association Inc., a New York City trade association representing the promotion marketing industry. "If the goals are continuity, which builds brand loyalty; usage, which encourages new or frequent usage; or image, which reinforces brand images and enhances any advertising, rebates can be chosen as the most effective means to get the job done."

Throughout the setup and implementation of the rebate program, keep your customers in mind. "Make it as easy as possible for customers to correctly submit their requests for rebates," Carter says. "If the rebate is for a fairly large sum, you may even want to make it a policy for the paperwork to be filled out with the customer [present]."

If you've had trouble with rebate programs in the past, there are other options. Carter suggests value-added rewards such as free products or upgrades and loyalty rewards clubs where certain customers are invited to take advantage of promotions not available to the general public. "If you use this kind of program, you must offer member-only specials so customers feel rewarded for their loyalty," Carter says.

Whether you offer rebates or other promotions, if something goes wrong and your customers aren't satisfied, do what you can to win back their loyalty and trust. "If a rebate program is an absolute disaster, acknowledge it to your customers and state what you are willing to do to restore goodwill," Carter says. "However, I caution against simply offering a discount on a future purchase. That's not restitution--it's just another promotion."

Contact Sources

Susan Carter

Minneapolis, Minnesota

(952) 890-5717

Claire Rosenzweig

Promotion Marketing Association Inc.

New York, New York

(212) 420-1100

Stu Sjouwerman

Alex Eckelberry

Sunbelt Software

Clearwater, Florida

(727) 562-0101, ext. 220