The Pros And Cons Of Vendor Incentive Programs (And If They're Really Worth It)

By Jessica Larson, SoloprenuerJournal.com

Managing your channels can often require rotating between a delicate touch and a heavy hand with your partners. When investing your time, effort, and funds into maintaining these partnerships, however, you need to know if your resources are well spent.

Vendor incentive programs are one such example of in-depth outreach. There are many iterations and examples of incentive programs. However, maximizing each incentive’s effectiveness starts with examining your specific vendors, and studying the incentives themselves. Thus, here are some pros and cons of vendor incentives to help you decide: are they worth it?

The Goal Of Vendor Incentive Programs

The goal of any incentive program is simple: increase sales. No matter the model, incentive programs work by growing sales through certain means, such as vendor rebates or initial purchase price reductions.

Some incentive programs have shown impressive ROIs. Incentive plans such as development fund investment can ensure continued development. As well, sales performance incentive funds (SPIFs) can reward your sellers directly. Still, every situation will be different. A particular program that works for one vendor might result in hassle and headache for another.

Providing a portfolio of incentive plans can often help ensure profitable relationships. Each relationship will need individual attention. Plus, a variety of choices can help kickstart that relationship.

Other incentive methods to include in a portfolio include:

• Sales rebates: Kickback specific percentages of sales to incentivize further promotion and sales.
• Activity-based incentives: Partners are rewarded after specific goals and milestones are met.
• Deal creation incentives: Partners receive a portion of successful deals they were a part of.
• Customize: Work with your partners to create programs tailored for mutual gain. This can even include sending a representative to work with your vendors.

Other changes within the channel often influence incentive programs. Rebates and savings upstream can be passed to your downstream partners and vendors.

Start small. Optimize your use of USPS, UPS, and FedEx services. Maximizing your shipping methods can save time and money throughout the channel. Then, pass those savings along to your vendors as development funds to benefit them directly.

Of course, the real world is rarely so cut and dry. In some cases, programs and vendor relationships might need to end at some point. Whatever the decision, start by determining the pros and cons of a vendor incentive program.

The Pros

When they work, incentive programs can boost sales and increase the outreach of your products. They can even lead to more product experts sharing your brand. Your products and services can grow and adapt to customer needs with appropriate reinvestment into your vendors.

Market development funds are often touted as some of the most effective programs. Some vendors will save these funds for large events that attract hundreds of clients. Others will turn these funds back into supplemental development. This can be especially attractive for VAR vendors, as it allows them to continue to enhance your original product.

Incentives also help spread the word about your company and products. Rebates and other incentives boost brand awareness through organic marketing, assuming the incentives are worth the vendor’s effort, of course.

Likewise, incentives can be passed down throughout the channel, even reaching the customers. When customers can take advantage of rebates or other benefits, they’ll feel closer to the product. In other words, customers and vendors that want to take advantage of incentives are already committed to the brand.

The Cons

For many, the negative aspects of incentive programs can outweigh the benefits. In some situations, incentive programs can go nowhere. These days, you’ll have to have enough to offer to keep up with the many eager new players in the game. Maximizing vendor relationships will often come down to how much you can sweeten the deal. While this has its merits, you’ll need to supply those funds.

Make sure your business’ finances are in top shape, as well as your personal numbers. If you’ve been struggling over the past few years from pandemic-related shutdowns, don’t neglect your credit. Look into secured credit cards to help rebuild and bolster your personal and business credit. This will translate into more that you can offer your vendors to work with you over the competition.

Other common grievances include:

• Neglected and unused MDFs.
• Low usage of rebates.
• Confusing or overly complicated incentive programs.
• Difficulties bridging original goals with vendor goals (for example, market shares vs. sales numbers).

Sound partnerships also need plenty of communication and relationship building. Finding vendors to learn, sell, and enhance your product can eat up your time and energy. And, when vendors and sales managers have an average turnover of 2 years, it can be difficult to achieve the needed relationship.

In today’s markets, competition is surging. Partnerships can be formed with ease, but quality relationships still take time and research. Incentives can help, but they can often obscure the true worth of a vendor. Specifically, without putting the incentive program to the test for some time, you won’t know if a vendor will deliver.

Finally, all too often, a vendor might only provide as much as the competition. Without innovation or further investment, growth can be rare.

The Bottom Line

Vendor incentive programs can lead to great results. Sound relationships and open communication channels are essential. Incentives can promote growth, drive sales, and spread organic marketing. However, it can take time and work.

Once you find vendors worth incentivizing, make it worth their while. Offering a diverse portfolio of incentive options can help solidify a beneficial relationship. Once providers and vendors work for the same goal, incentives can help strengthen the professional bond. Ultimately, that makes incentives a worthwhile investment of time and money.

About The Author

Jessica Larson is a married Midwestern mom and a solopreneur. She creates online courses for students, and she has started and run several other businesses over the years. Her goals are to support her family while still actually spending time with them, to act as an entrepreneurial role model for her two daughters, and to share what she has learned through The Solopreneur Journal.