What Is a Rebate? Types & How They Work (2026)

Rebate programs are incentives that provide a partial refund after a purchase. Unlike direct discounting, where savings apply immediately, rebates apply after a customer has paid for their item.

In this 2025 survey of more than 5,000 shoppers, more than half said they felt justified buying premium food, beverage, and home items when a cash-back offer was available, demonstrating the incentivizing potential of rebates. 

Ahead, learn about the different types of rebates and how they compare with discounts and coupons to inform your pricing strategy. 

What is a rebate?

A rebate is a partial refund given after a purchase is complete. Companies use rebates to attract customers without lowering list prices. 

How do rebates work?

Rebates reduce the overall cost of purchases, but customers must first complete redemption steps to receive them. 

These are the usual steps in the rebate process:

1. The customer pays full price. The buyer completes the transaction at the standard retail cost.
2. The customer gathers the required documentation. This can include the original receipt or invoice, depending on the promotion. It can also require proof of purchase from the packaging, such as a UPC code.
3. The customer submits the rebate claim. The customer submits their claim by mail or digital portal.
4. The company verifies the claim. The store or manufacturer reviews the submission to ensure it meets rebate terms.
5. The customer receives their rebate. Once approved, the customer receives the rebate, often in the form of a check, electronic payment, gift card, or store credit.

Rebate and promotional values vary by category, product type, and objective. Store owners can use rebates across many product categories.

Rebates vs. discounts

Discounts are sales promotions that apply immediately, while rebates offer delayed savings. Here are some other differences:

Types of rebates

Common types of rebates include:

• Cash rebates. Customers receive a percentage off the item cost, or a fixed, flat rate.
• Delivery rebates. Customers receive a full or partial refund on shipping charges. 
• Manufacturer rebates. Customers apply directly to the product manufacturer, not the store, to receive this rebate.
• Volume rebates. Similar to bundling discounts, customers receive higher rebates for buying more.
• Loyalty rebates. Repeat customers or loyalty program members receive cash back. Rebate amounts can be based on cumulative purchases over time.
• Competitor price-match rebates. Store owners offer to match or beat competitors’ prices when customers find lower prices on identical items elsewhere.

Get the Rewardify Shopify App to issue rebates across both your POS and online store. 

Rebate example

As a small electronics store owner, you price your latest smartphone at $600, with a $50 mail-in rebate. Customers pay full price upfront, then submit a form to get $50 back. 

To increase average order value (AOV), you could also create a tiered rebate program. In this case, your initial offer of a $50 rebate on a $600 phone still applies, but the rebate increases for each additional phone purchased: A customer who buys two phones can submit a rebate for $75 per phone ($150 total), a customer who buys three can apply for $100 per phone ($300 total), and so on.

With this strategy, you can advertise a lower effective price without cutting into your margins. You can also use rebate submission forms to collect customer data, which you can analyze to plan future campaigns.

Considerations for using rebates

Like any promotion, rebates come with trade-offs: they can drive sales and preserve price image, but they also require planning and follow-through.

Breakage

Rebates can benefit both businesses and consumers, but they may help businesses more. That’s because of “breakage,” the term used when qualified customers forget or neglect to submit their claims, increasing profitability.

Brand perception

Offering rebates instead of discounts may also help companies maintain a premium brand image. Peer-reviewed research suggests that heavy or frequent discounting can make a brand seem less valuable. Rebates, by contrast, are a no-discounting strategy that separates the reward from the sticker price.

Rebate management

Clear processes, effective communication, and close attention to timing and margins affect the success of your rebate program. Here are some additional tips:

• Offer online and mail-in options to satisfy different customer preferences.
• Set submission deadlines that give customers enough time to participate while supporting your cash-flow needs. In other words, make the rebate deadlines long enough that customers won’t miss them, but not so long that your store could have trouble managing payouts.
• Use rebates to encourage immediate sales spikes and use loyalty points to encourage long-term retention.
• Use Shopify Messaging to send automated reminders that help shoppers complete their redemption.
• Try rebates during slow seasonal periods to see if they can increase sales volume.
• Test various rebate amounts to balance sales and profit benefits against promotional costs.
• Train staff to explain the rebate process consistently.

Use Shopify’s automatic discounts tool to give your customers discounts that apply at checkout and in their cart.