Is hitting the next rebate tier worth it? The break-even formula
Nov 7, 2026 · 3 min read
Compare the extra rebate the purchase earns to what it costs to carry the extra stock until it sells. Break-even months = extra rebate ÷ (extra purchase × annual carrying cost ÷ 12). If the stock sells faster than that, the push pays. If it sells slower, the push loses money.
The formula
You're at $1.3M with a vendor. The next tier is at $1.5M. Buying $200K more gets you there. Is it worth it?
Worked example
Tiers: 2% at $1M, 3% at $1.5M. Retroactive, so the rate applies to everything bought in the period. Carrying cost is 25% a year.
| Rebate at $1.3M (2%) | $26,000 |
| Rebate at $1.5M (3%) | $45,000 |
| Extra rebate | $19,000 |
| Monthly carry ($200,000 × 25% ÷ 12) | $4,167 |
| Break-even | 4.6 months |
If the extra $200K of stock sells within 4.6 months, the push pays. Here's what happens at a few sell-through times:
| Months to sell | Carrying cost | Net |
|---|---|---|
| 3 | $12,500 | $6,500 |
| 6 | $25,000 | −$6,000 |
| 12 | $50,000 | −$31,000 |
The rebate is fixed the day you cross the tier. The carrying cost keeps growing every month the stock sits.
What the formula leaves out
- Stock you'd buy anyway. If you'd reorder it in January, you're only carrying it a few extra weeks. Use that as the carrying period.
- A price increase coming. Buying ahead of an increase adds value the formula doesn't count.
- Extended dating. If the vendor gives you 90 or 120 days to pay, your capital cost drops for that period.
- Dead stock risk. If some of the extra won't sell at all, the real loss is bigger than the carrying cost.
The formula is a first check. If a push only pays under optimistic sell-through, it's a bad bet.
Common questions
What carrying cost should I use?
Many distributors use 20 to 30 percent of inventory value per year. Use the low end if your capital is cheap and the product moves fast. Use the high end for slow movers or products that age out. If you don't know, 25 percent is a reasonable default.
Does it matter whether the tiers are retroactive?
A lot. With retroactive tiers, crossing the threshold raises the rate on every dollar bought in the period, so the extra rebate can be large. With incremental tiers, only the dollars above the threshold earn the higher rate, so the extra rebate is much smaller and pushes rarely pay.
What if I would buy the stock next month anyway?
Then you are only pulling the purchase forward. Use the months until you would have bought it as the carrying period, not the full sell-through time. A purchase pulled forward by a few weeks almost always pays.
Run your own numbers. The tier break-even calculator is free, needs no signup and works on your phone.