Rebate and cash-incentive programs have become a routine part of doing business. It's too bad that participating in these programs is such a headache for many builders. The cumbersome process of tracking product use, then completing and submitting paperwork, can be daunting. It also often generates skepticism.
A recent survey of homebuilders conducted by HomeSphere shows that two-thirds of those surveyed were less than confident that they were getting all the rebate dollars to which they were entitled. With profit margins as close as they are, it's reasonable to think that participating in something as seemingly simple as a rebate or cash-incentive program would be a given for builders. But that hasn't necessarily been the case.
Part of the dilemma is that both sides -- the homebuilder and the manufacturer -- don't typically have a direct relationship. Product distributors act as go-betweens for virtually everything and, in many cases, subcontractors actually make the purchases. Manufacturers are trying to reach out directly to the homebuilder with rebates and incentive programs. In exchange, manufacturers are asking homebuilders for their help in influencing product selection. But this classic quid-pro-quo business arrangement has inherent challenges.
Why So Complicated?
On the manufacturers' side, there's the Robinson- Patman Act, which regulates pricing as it relates to vertical relationships such as those between suppliers and retailers, as well as the manufacturers and homebuilders who buy products from them. The law says that sellers are not allowed to charge competing purchasers different prices for the same products of like grade and quality. The aim is to prevent pricing discrimination that might lessen competition or create a monopoly. Manufacturers must offer the same deal to all builders -- even on volume purchases -- effectively prohibiting extending discounts to builders on an individual basis. Homebuilders benefit from these programs because there's a level playing field. Nonetheless, individual builders can derive maximum returns if they play the game right, which means keeping good records and filing the paperwork.
Unfortunately, this is where builders typically face significant challenges. Who's going to do all the tracking and paperwork? How much staff time and related costs will a builder have to spend to organize and submit the required information? Larger homebuilders often dedicate one or two staff positions to handle rebates. Small and midsize homebuilders may not have that luxury and struggle to keep up with all the various offers.
When this occurs, it's not surprising that builders can be frustrated with rebate and incentive programs. A builder might throw up his hands and say, "I quit!" But who wants to pass up the "free" money rebates and cash-incentive program offers?
Benefits of a Third Party
Fortunately, the world of rebates and incentive programs continues to evolve. In the same way that software for front-office and back-office operations has drastically increased efficiency, third-party rebate-management programs -- as well as cashincentive programs -- are streamlining the process for builders to participate. Though these types of programs are not new, technology has had an impact on their ease of use and efficiency.
How do third-party programs work? A builder typically gets started by talking with a program representative, who sets up the builder's account. The account provides a link between the builder and the various manufacturers participating in the program. As a participant, a builder simply selects the products that he uses in the construction of his houses from the program's list of manufacturers.
Some programs are Web-based through secure, password-protected access. This means no software needs to be loaded onto your company's computer. A builder simply compiles his data and submits closing information online about his building projects. The program does all of the calculations, and a check for the incentive dollars that month is issued promptly to the builder. Behind the scenes -- and what the builder no longer has to be concerned with -- is all the sorting and invoicing of participating manufacturers.
Blending the benefits of rebates and cash incentives with the benefits of user-friendly digital systems creates a win-win scenario for builders and manufacturers. Builders can track and file the paperwork easily, often without a dedicated staff person. Manufacturers receive the information they desire in a regular, routine fashion. This technologically streamlined process ultimately puts dollars into the hands of builders faster and provides manufacturers with the product usage data that they need for marketing programs and to comply with the more stringent Sarbanes-Oxley reporting requirements. The electronic collaboration dramatically improves the efficiency of the supply chain.
First Impressions
LTS Builders, a custom homebuilder in Northeastern Pennsylvania, did not participate in manufacturer rebate programs before acquiring third-party rebate software. Janet Skibinski, department coordinator of the construction administration department at LTS, says that the company now benefits from purchases made from a host of manufacturers. "I only have to deal with the process once a month," says Skibinski.
Construction administrators keep tabs on which products are being used and provide that information to Skibinski, who then compiles the figures and simply faxes it to the company's program representative. "[The representative] completes the process for us, and then every month we get a check," adds Skibinski. For LTS, it adds up to an additional $30,000 to $40,000 annually.
The account representative updates LTS when new products and manufacturers have been added to the program, offering additional opportunities for incentives and rebates.
Expanding Opportunities
Mike Meyers, vice president of purchasing for Lakewood Homes, a Chicago-area entry-level homebuilder, says the rebate process wasn't very complicated because the company didn't take advantage of many of them. The advantage of reporting to only one company was one reason for the change to rebate software. And the rebate dollars Lakewood Homes receives has doubled, says Meyers. "It was a way to take advantage of several manufacturers' rebate programs, in addition to the ones that we were already dealing with, and simplifying the reporting mechanism," he explains.
Staff time needed for paperwork has also decreased significantly with Web-based reporting. "The biggest difference is the convenience of inputting everything right on the Web site, which is about a 50 percent saving of the time spent reporting closings," says Meyers.
The program's account representative also works to find new products and manufacturers for Lakewood Homes' current rebate program.
Win-Win Situation
In selecting a third-party program, builders should ask the following questions: Is the program provided at no cost to the builder? Are the manufacturers represented highly regarded in the industry for their products? Is the paperwork required minimal and easy to accomplish, or even paperless? Are checks issued on a monthly basis?
Cost management and purchasing efficiencies are more important these days. For builders and manufacturers, advances in software and technology have improved the landscape in rebate and cash-incentive program management. For the builder, this translates to an assurance that he's getting the best prices on products he uses. For the manufacturer, the process for receiving the product tracking information is simplified.
Jim Waldrop is the founder and CEO of HomeSphere, Inc. (www.homesphere.com), which develops and markets BuildSoft, Builder 360 and AllTrack, as well as BRI, the cash incentive/rebatemanagement program for builders.