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

money-out-window

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 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.

Pile of money

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.

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