On this page you will learn about:

- The 'marketing rebate'

- Visible and invisible margin

- Who gets what

- Why this is relevant to you

There is one subject that is never discussed outside the hallowed halls of the upper echelons of the software market.

It is often called the ‘marketing rebate’.

How does it work?

The way it works is very simple.  The top level resellers purchase licences from software publishers at the price they negotiate (see The resellers' discount).

They then sell onto other resellers lower down the chain or directly to end user customers (i.e. your organisation) at a profit which we will call the visible margin.

Everyone recognises this as a fair and open commercial set of relationships.

However, whatever the visible margin there is almost always a second and non-visible margin that software publishers give their top resellers simply for 'moving' product at the end of each month or financial period.

So even if the purchase (from the publisher) and sell prices (to you) are the same i.e. there is no 'visible profit', these resellers usually receive a 'rebate', a percentage of the deal value, later in the day.

This can be particularly relevant to customers that have a 'cost plus x' deal with their reseller, where all prices are supposed to be open book.

At the end of every month or quarter, a payment will be made from the publisher to the reseller based on the quantity of product that the reseller has purchased from the publisher.

The percentage points that we are talking about are small, usually under 5%, but don’t forget that the top resellers are purchasing several millions of pounds of product from the big publishers every month, so even a 1% rebate can be a significant contribution to the bottom line.

Who gets what?

Unfortunately for the sales staff working for the resellers, i.e. the people you will most likely deal with, they will only be remunerated on the visible profit margin, where the rebate is ignored.  This means there is no motivation for them to negotiate as low as they could, because they will make no commission on the deal.

In fact this is usually a no go area, the sales staff just simply have to ignore the rebate as the directors and bosses of such resellers keep the rebate for themselves.

Why is this relevant to your organisation?
Our message to you as the customer is simple.  Resellers will never sell to you at a price they cannot afford, there may well be more margin in a deal than you believe, or that the sales staff are willing to recognise.

So when resellers plead poverty in terms of margins being squeezed because of intense competition, bring out the smallest violins on the planet and play on...

Do not be afraid to push a little harder in your negotiations.  If you are a valued customer, and you are to someone, then you will get the best price.

Be aware that it is only the top level resellers that are privileged to the marketing rebate as they are the only resellers that have a direct relationship with the publishers.  We discuss this in more detail in The right reseller and where you should be purchasing your software from.

All the more for you to negotiate as we explain in Buying tactics...

And don't forget that these top resellers also enjoy The resellers' discount...