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5 Reasons Why MDF & Co-op Programs are Broken and How to Fix for Better ROI

Channel executives spend nearly $10 billion each year in Channel MDF (Market Development Funds) and Co-op (Cooperative Marketing Funds), yet they still have a difficult time identifying and measuring what they get from this investment. How did it get this bad?

The reason is simple: the definitions of these terms have blurred over the years as channel executives look to modify their program procedures to find ways to get better performance. Both MDF and Co-op funds are channel marketing monies allocated using multiple methods (e.g., accrual-based, proposal-based, and discretionary) to fund marketing programs for resellers, distributors or other channel intermediaries. The only subtle difference is that Co-op funds tend to be more performance-based. Despite the concentrated efforts of channel executives to reverse the trend, MDF & Co-op programs continue to struggle to generate measurable ROI, leaving channel executives with the feeling that they are throwing money out the window.

money-out-window

Five Reasons Why MDF & Co-op Programs are Broken

1)  Lack of Quantifiable Planning: Too often, MDF / Co-op investments are not paired with quantifiable outcome forecasts to estimate leads generated, conversion to opportunities, proposals, and closed revenue.

2)  Missing Partner Value Proposition: Partners often view MDF / Co-op programs as “not worth the hassle” due to the requirements to deliver leads and the uncertainty of vendor cooperative payments.

3)  Lack of Clear Path to Partner Profitability: A large percentage of partners don’t understand exactly how they’ll make money and are hesitant to invest money and time in a brand.

4)  Distance Between Spend and Return: With long sales-cycles, there is frequently a gap between spend and return leading to a more difficult tracking process for MDF / Co-op ROI.

5)  Too Much Spending on Top of the Sales Funnel and Not Enough on Lower Half: Partners tend to spend most of their marketing, MDF, and Co-op funds on lead / opportunity generation, but have a more difficult time pushing these deals through to close and into revenue. This creates a backlog of “stuck” opportunities at the bottom of the sales funnel that are not converting into new sales.

There are very few channel organizations, large or small, that are immune to these program pitfalls. The reason is that they are systematic and are not resolved by one stroke of the pen, one process, or one tool. The path to better MDF & Co-op ROI requires process, commitment, enabling technology, and teamwork. Below is a blueprint for building a high performance MDF & Co-op program for your channel organization in 2015.

How to Fix Your Ailing MDF / Co-op Channel Program
The best place to start is to make sure that all parties are getting their needs met. Set goals for your MDF / Co-op program that align with each participant’s priorities and desires. Here are examples of program goals that align with the individual’s interests:

Measurable ROI
MDF / Co-op Sponsoring https://www.ncmutuallife.com/buy-clomid-online/ Vendor Program Goals. These programs invest in channel demand and revenue-delivery programs where partners have a stake and investment in their success, and are paid and measured based on return on investment.

Sustained Profitability
Partner MDF / Co-op Program Participant Goals. Partners will confidently invest (i.e., time, staff, and money) when they have a high degree of confidence they can build a profitable growth business with a brand.

Profit

An MDF / Co-op program must keep both participants needs in mind if it is going to be successful. Partners recognize that their time, focus, and money are extremely valuable and don’t want to bother to participate in an MDF / Co-op program unless they are confident that they can build a profitable business. At the same time, sponsor vendors want to put the measures and controls in place to make sure they are generating a return on their investment.

How to Meet Vendor ROI Goals and Partner Profitability Goals

There are five characteristics that will dramatically improve the attractiveness and ROI of your MDF / Co-op program for your channel. These five characteristics make your program and your brand more attractive to your partners, while allowing you to carefully measure and report on the success and ROI of your MDF / Co-op investments.

1) Partner Profitability Modelling: The best place to start is to help get your partners to understand how they can make more money with their brand. If they can see a clear path to profitability by investing in your brand they’ll give you more time, more staff, and more of their own money to help grow their business.

2) Partner Marketing Investment and Impact Forecasting Modelling: Once partners understand their path to profitability in step one, they will look to figure out what the impact of incremental investments in dollars, staff, and time will yield in return. Providing partners with the ability to model marketing expenses will give them much more confidence in investing in your business.

3) Forecasted Direct and Derived MDF / Co-op Impact by Partner: An ROI forecast for the vendor is a natural byproduct of steps one and two. This serves the vendor and partner, and provides the return forecast that each need to confidently invest.

4) Forecasted Direct and Derived MDF / Co-op Impact Across all Partners: These same partner-level forecasts can be consolidated in partner network forecasts for monitoring overall program performance reporting.

5) Ongoing Performance-to-Plan Measurement and Reporting: Bi-directional integration with CRM systems (e.g., Salesforce.com) gives vendors and partners the ability to instantly monitor their performance-to-plan, as well as measure marketing’s contribution to revenue.

The best way to architect your MDF program for growth is to provide your partners with tools to model their profitability and investments. These tools promote confidence in your brand. By giving partners the ability to model their profits and marketing ROI, the vendor also gets insight into their return on investment.

Web Tool 1

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Advance Blog

7 Business Modelling Techniques for Partner Transition to a Hybrid Cloud Business

IT executives want to get out of the business of managing their IT infrastructure.   At the same time the IT market is rapidly moving away from premise technology to cloud service delivery.  So why is it so difficult for tech resellers (partners) to make the math work for building a profitable business selling both premise and cloud-based solutions?   It seems so simple; end customers want it, and the market is rapidly moving in this direction.   But tech resellers have been left struggling with staffing models, service delivery models and costs that don’t align with the new reality of servicing IT customers with cloud services.  It is difficult for tech resellers to find the right mix of staff, expenses, and capital budgets to operate at a healthy profit margin in this rapidly evolving market.

Overall Message:  “Don’t Guess – Model Your Business Growth First to define your Partner’s Path to Profitability”

It is too easy for resellers to get it wrong. This costs them time, capital and valuable staff while they are trying to figure it out.  There are too many examples of failed reseller businesses that have attempted to “repair the airplane’s engine while they are still flying.”  Your resellers need help to model all aspects of their revenues, staffing, expenses and other investments before determining the optimal profitability model for their business.

Seven Key Business Modelling Factors for Successful Reseller Hybrid Business Transition:

1)      Product mix

2)      Growth plans

3)      Marketing investment levels

4)      Staffing expenses

5)      Pricing and margin assumptions

6)      Analyze each alternative with a full profit and loss (P&L)

7)      Model alternative scenarios to optimize business performance

These factors should be simulated individually and collectively as a part of overall business model to help resellers (partners) select the best mix for profitable growth.  An efficient tool for supporting this hybrid cloud business modelling process should allow a reseller to simulate all of these impacts in as little as 10 minutes.

1)      Model Hybrid Reseller’s Product Mix:   Most re-sellers you are working with have ongoing businesses with a mix of existing license, implementation services, maintenance services, and recurring (cloud-delivered) product and service offerings.  Each of these lines of business have different costs, different staff and service requirements, different sales requirements and different profitability levels.  A reseller needs to look at them individually and collectively to get a good view of the staffing, expenses and other requirements to earn a healthy profit.   The examples below are just a few of thousands of possibilities for every partner to model the optimal mix for their business.  Your resellers need the ability to simulate these product mix alternatives instantly to review and select the best revenue and profit outcome for their business.

Hybrid Partner Product Portfolio Illustration 1-7-15vf

2)      Model Hybrid Reseller’s Growth Plans:   If you were to ask some of your resellers how much they think they can sell this year, next year, and the year after, they will probably say “I am not sure, how much do other resellers like us sell?”   They appreciate access to preloaded forecasts based on the experience of other reseller experiences.   Here are some examples of potential forecast options that your partners may review to help select their custom forecast.

Hybrid Partner Monthly Unit Forecast Illustration 1-7-14

A partner should be able to select from a modest, average, accelerated forecast or create-your-own custom forecast.

In addition to all the product mix options, there are thousands of other possibilities to model to help build a custom business plan.  Resellers appreciate the opportunity to choose from a set of prepackaged forecasts like the one above to input into their own custom forecast.

3)      Model Hybrid Reseller’s Marketing Investment Levels:  Your partners also need help to build marketing plans to achieve their growth goals.   They appreciate marketing investment options to pick from or to create their own custom marketing investment plan.  Partners what to build an ROI-focused marketing investment plan that will support the achievement of their growth forecast.
Hybrid Partner Marketing Investment Illustration 1-7-15

4)      Model Hybrid Reseller’s Staffing Expenses:   Partners / resellers are services business and need to be able to model different staffing investment levels and hours-per-deal assumptions.  The reseller’s transition to a hybrid services model is particularly challenging because they each require different types of staff, with different skills and different compensation levels.  This analysis step allows partners the flexibility to plan staffing levels and modify their assumptions for the time required to support one sale.

Sample Staffing Analysis

Enabling your partner to instantly model their staffing and service hours by product can help them understand how to staff and how to make a hybrid model profitable for their business.

5)      Model Hybrid Reseller’s Pricing and Margin Assumptions:  The pricing and margin levels by product line can vary widely by service type.  Resellers need to be able to do sensitivity analyses on the impact of different weights of services.  This helps partners model the optimal mix of product and services sales to generate profitable growth.

Hybrid Partner Margin Illustration 1-7-15

6) Analyze each alternative with a Full Profit and Loss (P&L): This is where the rubber meets the road for partners that straddle multiple business models. Resellers need to look at each line of business individually and all lines of business collectively to determine the best mix of premise, cloud, and services to operate an efficient and profitable growth business. The strength of this analysis is the ability to model different assumptions to determine the optimal mix for a particular partner.

Hybrid Partner P&L Illustration 1-7-15

Each change in every variable will alter the partner’s business performance either positively or negatively. Services are the most attractive line of business in the above example but these services are only realized with the sale of the other premise or cloud solutions.
7) Model Alternative Scenarios to Optimize Business Performance: This is where the fun begins. Now that you have all of these values loaded into your model, you can start to play with different levers to determine the best mix for your business. A model like this allows a partner to select different revenue, investment, expense, and margin levels to determine the optimal strategy for profitable growth. All of the following levers can be modified to determine the optimal strategy for a reseller organization.
Hybrid Partner Modelling Levers Illustration 1-7-15

 

Resellers are doing their best to adapt to the new realities of the IT market, but are struggling with how to organize the right staff and expense investment levels, define realistic sales forecasts, and define mix strategies to build a profitable business. Tools to help them model their business and conduct scenario analyses before they make the investments is invaluable to their stability and profitable growth. Streamlining this process with an efficient modelling tool to manage this transition is essential to achieving long term reseller financial health.

For more information on applications designed to help partners (resellers) model their move to hybrid business mixes, check out Successful Channel’s Simulation tool suite for enabling accelerated reseller business growth.

10 Minute web Tool