We all like receiving a little money back in our wallets. Well, let’s be honest, we all like receiving A LOT of money back in our wallets. We make purchases on our credit card with the best rewards, we buy electronics that have the most attractive rebates and it’s always a pleasure to get that security deposit back at the end of a lease. Many of us are diligent about taking advantage of opportunities to receive money back in various corners of our personal lives, but some don’t realize that the rebate market is alive and kicking for businesses as well.
Members of group purchasing organizations (GPOs) often receive rebates on the purchases that they make from the suppliers within the group. The concept is no different than a consumer buying a computer at the office supply store – you make a purchase, wait a short period, and then get a percentage of the funds you spent on your purchase back. There is one major difference, however: GPOs do not make you jump through hoop after hoop to get that money back in the end.
The reason suppliers that are part of GPOs are able to offer rebates is based on purchase aggregation. When large numbers of businesses join a GPO, they collectively buy in mass from the same suppliers. These vendors treat these individual businesses buying within the group as one large company because of their membership designation within the GPO. The sheer volume being purchased by this “one company” incentivizes the supplier to administer rewards for the much appreciated boost in sales. These rewards often take the form of rebate programs for the members. Members receive their rebates after a designated period of purchases, called the “rebate cycle.”
There are several different types of rebate programs that suppliers within a GPO may offer. Common examples include:
A straight rebate:
The member receives an established percentage of cash back from a supplier at the end of the rebate cycle. If the percentage is 5% and they purchased $10,000 in volume during the cycle, they would receive $500 back in rebate.
A tiered rebate:
The member receives a rebate percentage based on the group’s volume with the supplier during the cycle. The supplier may pay back 1% to each member if the group purchases up to $100,000 as a whole, 2% if it purchases up to $200,000, 3% up to $300,000, and so on.
Suppliers can get even more creative with the rebate programs they offer based on what suits their needs, as well as what’s best for the GPO’s members. The best part is that members do not have to go to great lengths to get the cash back that they earned. Often times in consumer purchases, companies will make the customer endure a long and painstaking process in hope that the customer will decide the opportunity cost is too great, and terminates pursuing the rebate. However, rebates administered through GPOs are done via programs negotiated by the GPO that the suppliers are contractually obligated to pay out on time.
That’s right, after the purchases are made, members can just sit back, relax, and watch the rebate money pile up. Sure beats dealing with confusing expiration dates and cutting proof-of-purchase barcodes out…