What are Volume Rebate Contracts and Special Pricing Agreements?

Posted On: April 30, 2024

Many manufacturers and wholesalers use sales incentive programs to grow top line sales or to change up the sales mix. Both incentives and price cuts can produce the same outcome, but incentives preserve margin because they are promotional and temporary in nature. The various incentive program styles include:

• Sales rep spiffs and loyalty programs.
• End customer rebates and instant discount reimbursements.
• Promotional event reimbursements.
• Paired incentives and combo bonsus.
• Volume Rebate Contracts.
• Special Pricing Agreements. 

The last two, Volume Rebate Contracts and Special Pricing Agreements, often get confused with each other. In this blog, we'll define and contrast these two styles. 

A Volume Rebate Contract is a formal contract between a manufacturer or wholesaler and their channel partner that stipulates criteria the partner must satisfy to earn a volume rebate. A common volume rebate is a percentage of total purchases made over a period. For example, 2% of gross purchase volume made between January 1st and December 31st of the current year shall be rebated back in the form of a bill credit issued no later than February 15th of the following year. Volume rebate contracts can also include accelerators to reward year-over-year growth or true-ups to reward purchases of targeted products and categories.

A Special Pricing Agreement is an agreement between a manufacturer or wholesaler and their channel partner where the seller agrees to sell products or services to the buyer at a price that is lower than the standard list price because the parties have determined that is necessary to secure a specific piece of business. Special pricing agreements are more narrowly defined when compared volume rebate contracts. They will typically address one model/SKU and a single purchase order (possibly with multiple releases).

Whereas Volume Rebate Contracts are iniated and configured by the seller, Special Pricing Agreements are initiated and proposed by the buyer. Eventually, actual sales or purchase data is compared to the Contract or Agreement. In the case of the former, a master incentive is calculated and processed. In the case of the latter, the actual outcome is compared to the agreement to evaluate it's performance for renewal.