The growth rebate: rewarding a supplier’s year-over-year progress

A growth rebate is an additional scale on top of the year-end rebate that rewards year-over-year growth in turnover. Its tier is determined by the change against the previous year, in euros or as a percentage; with a whole rate, the rate reached then applies to the year’s total turnover. Well designed, it steers the relationship towards growth; poorly defined, it becomes the first source of year-end disputes.

What is a growth rebate?

The base rebate scale rewards a level of turnover. A growth rebate rewards movement: the supplier pays an extra percentage if the turnover achieved with the distributor grows enough compared with the previous year. It comes on top of the base scale and any family scales; it does not replace them.

A supplier whose volume is flat can therefore reach a high tier of the base scale without earning any growth rebate, while a small, fast-growing supplier can earn a growth rebate while staying in a low tier of the base scale.

What is a growth rebate calculated on?

Two quantities are involved and must be kept apart:

• The change, which determines the tier reached: as an amount, year N turnover minus year N-1 turnover; as a percentage, that difference divided by year N-1 turnover.
• The base, to which the rate applies: with a whole rate, it is year N’s total turnover; with a marginal rate, it is the slices of the change itself.

Worked example

Take a growth rebate defined on the change in euros:

The gap between the two modes is even wider than for the base scale: in marginal mode the bonus only applies to the growth, not to all turnover. The bonus is added to the base rebate: in our full rebate calculation example, it brings the total to €38,250.

Tiers by amount or by percentage?

Tiers can be expressed in euros of growth or as a percentage of growth. With a percentage scale, for example 0% below +10%, 0.5% from +10% to +20% and 1% above, the same +25% growth reaches the 1% tier: €1,250,000 × 1% = €12,500.

Small or large supplier: the same scale says different things

Compare two suppliers under the two growth scales in this article, with a whole rate: by amount (0.5% from +€100,000 to +€300,000, 1% above) and by percentage (0.5% from +10% to +20%, 1% above).

The small supplier grows strongly in percentage terms but not in amount: it earns nothing under the euro scale and the top rate under the percentage scale. The large supplier earns the same under both. Neither is better in absolute terms: an amount scale rewards volume won, a percentage scale rewards momentum whatever the size. Choose based on what you want to encourage.

Combining a growth rebate with the base scale

A growth rebate is never read on its own. With our example base scale (2% between €1M and €2M), two suppliers at €1,250,000 of turnover earn the same base rebate, €25,000. If one was already at €1,250,000 the year before and the other at €1,000,000, only the second earns the €6,250 growth rebate: €31,250 in total against €25,000.

That is the intended effect: at the same level, growth is rewarded. But adding the two scales can also create a double threshold effect, when growth crosses a growth bound just as the total crosses a base-scale bound. Simulate the combinations before signing.

Tracking growth during the year

During the year, compare year N’s validated cumulative figure with N-1’s at the same date. If the supplier is at €610,000 at the end of June against €488,000 a year earlier, it is up €122,000, or +25%. With a landing of €1,250,000 it would finish at +€250,000, in the 0.5% tier: a €6,250 bonus.

The distance to the next growth tier is then €50,000: at €1,300,000 of turnover, growth would reach +€300,000 and the rate 1%, a €13,000 bonus, while the base scale would stay at 2% (€26,000). Those extra €50,000 of turnover would bring €7,750 more rebate in total, €6,750 of it from growth: the kind of information that steers fourth-quarter purchasing.

Pitfalls to avoid

• A missing prior-year figure. Without validated turnover for the previous year, the bonus cannot be computed. Counting it as zero would turn all turnover into growth.
• A changing scope. An acquisition, a new store, delisted or added products change growth without any commercial effort. Define the comparison scope in the agreement.
• Different periods. During the year, compare cumulative figures to the same month for N and N-1, even if the period split has changed.
• The threshold effect. With a whole rate, crossing +€100,000 takes the bonus from €0 to about 0.5% of all turnover: accurate declarations around that threshold are essential.
• Decline. An explicit 0% “decline” band makes the rule clear: no bonus, but no penalty on the base scale either.

When should you offer a growth rebate?

• To support a new supplier’s ramp-up.
• To back a range extension or a wider listing.
• To develop a strategic category, combined with a family scale.
• Less so for a mature, stable relationship, where a well-calibrated base scale is enough (see designing next year’s scale).

Growth rebates in Palier

In Palier, the growth bonus is an optional scale of the agreement. Its tiers apply to the change in euros or as a percentage, with an explicit decline band; the whole or marginal mode is set separately, marginal being available for amount-based tiers only. The prior year’s figure comes from the previous year’s last validated period or from imported history; if it is missing, the bonus is flagged as not computable instead of being computed on zero. See the features.

Key takeaways