There are many calculation mechanisms involved with rebates, many done via spreadsheets that unfortunately don’t always produce the correct calculations. In this blog we will explore strung calculations in more detail, how they work within our rebate management system and how they differ from traditional rebates that are calculated individually for each purchase.  

What Is a Strung Calculation Mechanism?

Strung calculations take into account the cumulative spending of a customer over a specific time period. As the customer’s spending increases over time, the rebate amount also increases. This means that customers become eligible for higher rebate percentages or amounts based on their cumulative spending.  

Taking a strung approach to calculations prevents a trading partner from paying a rebate multiple times on the same turnover or, more precisely, paying a rebate on top of an existing rebate. In the case of monthly or quarterly rebates, any rebates already paid during the year are subtracted from the annual spend when calculating the annual rebate. This ensures that the rebate is not paid again for the amount already covered by previous rebates throughout the year.

Strung Calculation Example

Imagine a scenario where a supplier provides a consistent 5% rebate every month, along with an annual incentive paid at a nett rate of 3%. The term “nett” indicates that it is a strung calculation. If we take into account a total expenditure of £1 million, the nett amount after deducting the 5% rebate would be £950,000. Subsequently, applying the 3% nett rate to this amount would yield an additional £28,500.

Why Do Businesses Use Strung Calculation Mechanisms?

Strung calculations encourage trading partners to increase their overall spending to reach higher rebate tiers, thus creating an incentive for loyalty and larger volume purchases. These rebates can be structured on a monthly, quarterly, or annual basis, depending on the agreement between the two trading partners.

The purpose is to reward your trading partner for their continued business and provide an incentive to consolidate their purchases. By offering increasing rebate rates based on cumulative spending, buyers and sellers can foster customer loyalty and encourage long-term relationships.

Tackling the Challenges of Strung Calculation Mechanisms

Rebate calculations can be extremely difficult, especially when programs contain multiple rebate periods and strings. Here are some of the main challenges:

1. Calculation Method

Unlike traditional rebates that are straightforward and calculated individually per transaction, strung calculations involve cumulative spending over a specific period. Determining the correct rebate amount requires accurately tracking and aggregating purchases over time, which can be challenging, especially for businesses with large volumes of transactions.

2. Tiered Structure

Having tiered structures, where the rebate rate increases as cumulative spending reaches certain thresholds. Managing and administering multiple tiers, each with its own rebate rate, can add complexity to the rebate program. It requires careful tracking of spending levels and ensuring that customers receive the correct rebate rate based on their cumulative purchases.

3. Administrative Complexity

Rebate management typically involves intricate administrative processes, especially when relying on spreadsheets or enterprise resource planning (ERP) systems. This complexity is amplified when dealing with a large number of trading partners or more intricate mechanisms like strung calculations. It is essential to thoroughly comprehend how the calculation works to obtain accurate results.

4. Data Accuracy

Accurate interpretation of data is vital for effectively calculating rebates. Businesses must have robust data management and analytical capabilities in place to achieve this. They need to collect and analyze their data before inputting it into a system that can effectively perform strung calculations.

Automating your Strung Calculation Mechanisms

By employing an automated rebate management system such as Enable, businesses can set up rebate programs and explicitly link them through deduction deals. When you select a deduction deal, the earnings from that rebate are automatically deducted from the qualifying spend of the program you are setting up.  

For example, if you set up a rebate program with a qualifying spend of one million pounds and the deduction deal has already earned a hundred thousand pounds, the system will calculate the qualifying spend as 900,000 pounds for that deal.

By representing and setting up both deals explicitly, the system ensures that they accurately reflect your intentions. The explicit link between the deals is a prominent feature of the strung calculation process, making it highly visible and integral to the system.

In our on-demand webinar, Enable’s Evangelist Mark Gilham discusses all types of rebates you can use to achieve your strategic goals. Click here to watch it.