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MDF Or Co-op: The Wrong Choice Could Cost Your Channel

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By Stacy Desrosiers, VP of Marketing and Business Development, Channeltivity

One of the biggest challenges companies face when working with multiple partners is managing marketing development funds (MDF). What type of program do you go with? Will it benefit both the vendor and the partner? These are just a couple of the many questions that arise when evaluating options for marketing with the channel. So how do you determine which option is best for your company and your partners?

As a growing company, you’ve likely already set aside marketing development funds. Now you must decide how to strategically allocate them to receive the highest return on investment, which includes driving sales, developing new business prospects and attaining overall market share. But before you become enthralled with the endless positive outcomes of choosing a prosperous program, you must establish what your program will actually consist of.


Let’s break it down and point out the different ways each program enables your partners to receive money to fund programs that promote you, the vendor. The MDF model entails a vendor dispensing funds to the partner based on a mutually agreed upon joint marketing plan. Alternatively, a co-op program works on an “earned basis.” This means that the partner only receives a percentage of funds to carry out mutually agreed upon marketing initiatives based on sales revenue.   

Before you incorporate either program into your overall partner program, there still are several factors to consider for both options.

MDF Factors:

  • How much of your yearly marketing budget will be set aside for partner related activities?
  • Are the funds available on a first come, first serve basis, or is there a specific amount of money set aside for each partner?
  • How will you develop a joint marketing plan and who needs to be involved in the approval of that plan?
  • How do partners (after a plan has been agreed upon), request funds for the specific campaigns?
  • Does the vendor have a rule that they only pay for a portion of the program? (i.e. half of the total cost)
  • Is there a tracking system built into your portal of some way of tracking the requests and reimbursements?


Co-op Factors:

  • Based on the revenue that a partner drives, would the funds they receive as part of a Co-op program (generally 5% to 10% of revenue) amount to any level of funds that could be used to fund a marketing program? 
  • Do you expect your partners to drive high volume of your product on a regular basis?
  • Do you expect or need to have time limits on when partners can request the funds and use them? Most vendors that use co-op programs have a yearly turnover in funds. Anything that goes unused is gone and the partner then needs to start at $0 for the next year.
  • What accounting practices are in place to manage the funds? Do you have a tracking system visible to partners?
  • How do partners see the amount of money that is in their account at any time? Will you offer monthly or quarterly updates, or will partners get to see changes to their account on a day-to-day basis?
  • Are there certain types of programs that co-op dollars can be used for and how do partners get approval to use funds?

Furthermore, it is critical that vendors understand not all partners are created equal. More specifically, both program options can utilize multiple levels to accommodate different partners based on size, scope and experience level. In addition, they can provide varying access to benefits such as funds. Perhaps the disbursement of funds could be used as an incentive for a partner to move up through the levels. Your decision to leverage an MDF or co-op program with any of your partners will depend on the individual circumstances and goals. For instance, distributors may have a co-op, while regional VARs may have a MDF component to their platform. 

In the end, both programs have their respective benefits. But regardless of which option you and your partners choose, without careful strategic planning, your funds are likely to go unused or misused. In fact, Borrell Associates found that out of $1.7 billion in online co-op marketing dollars available for local affiliates, an estimated $450 million goes unused. With an ever-changing market, standing out and remaining competitive requires a plan that best suits the individual needs of both you and your partner.

 

 

Stacy Desrosiers is an accomplished channel expert with nearly 20 years of experience in engaging, enabling and marketing with VARs for technology companies. Her work as VP of Marketing and Business Development for Channeltivity, a PRM system provider designed for emerging and mid-market companies, stems from the belief that having a strong foundation will enable any organization to successfully manage and support their growing partner base.

 

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