MDF and Co-op Marketing Funds: An IT Vendor's Guide to Sales Growth
The global IT market is expected to reach $3.8 trillion by the end of this year, according to research consulting firm IDC. This is an increase over last years $3.7 trillion.
Covering all hardware, software, services and telecommunications, it is estimated that two-thirds of these IT products and services are sold through indirect sales channels. They include:
- HARDWARE: computers, servers, storage, mobile devices, printers, network equipment
- SOFTWARE: applications for productivity, business, networks, systems, security; mobile apps
- SERVICES: deployment, integration, custom development, break/fix, managed services
- INFRASTRUCTURE: Internet backbone, telecommunications networks, cloud data centers
- INFORMATION: data, documents, voice, video, images, social streams
- DIGITAL BUSINESS: commerce, communication, collaboration, automation, governance
Benefits of an Indirect Sales Channel
Establishing an indirect sales channel is one of the most effective and efficient means for vendors and manufacturers to go to market, whether they are small, start-up businesses introducing themselves for the first time or large enterprises launching a new product or service.
So, as more and more vendors come to market, their need to bring distributors, Managed Service Providers (MSPs), Cloud Service Providers (CSPs), Value Added Resellers (VARs) and other channel partners on board continues to grow.
But, channel industry observer CRN has reported that channel partners have reduced the number of vendors they work with from 18 to 14 over the last two years. It is, therefore, becoming more challenging to recruit channel partners and IT vendors must include financial incentives like MDF (Market Development Funds) or co-op marketing funds in their channel partner programs to entice MSPs, VARs, and other channel partners to select them over their competitors.
In this post, we will look at the key components of MDF and co-op marketing funds from the vendor’s perspective. This includes:
- MDF and co-op marketing defined and the differences between them.
- Why your reseller program should include channel marketing funds.
- Why so much MDF and co-op marketing funds go unused.
- What your channel partners really want. (Hint: It’s not just about the channel marketing funds.)
- MDF and co-op marketing best practices.
MDF and Co-op Marketing Funds Defined and the Differences Between Them.
It is inaccurate to use the terms MDF and co-op marketing interchangeably as they are acquired by channel partners in different ways and at different times. The biggest difference is that a vendor will offer MDF funds to channel partners before any sale has taken place and co-op funds are given after sales have taken place. For example, you may be launching a new product into a new market and want to kick-start sales by providing a select group of your channel partners with money to start selling into their customer base and specific vertical markets.
On the flip-side, co-op funds are given to channel partners who have already sold your product to encourage them to further market your offering and sell more.
- Market Development Funds (MDF) Defined: MDF are funds held by vendors and offered to select partners based on the specific needs of the vendor and the potential for success of the partner. A vendor wishing to increase sales for a specific product or looking to enter a new vertical market may discuss the possibility of receiving additional funds with a partner who has proven their expertise or sales prowess or one where the vendor sees potential for growth and future sales. They are given at the vendor’s discretion to select channel partners prior to any sales taking place and the dollar amount can vary from partner to partner. Specific sales and marketing plans are discussed before the funds are given and detailed reporting of leads received and customers converted must usually be provided by the partner to the vendor.
- Co-op Marketing Funds Defined: Co-op marketing funds are accrued as a percentage of prior sales. Vendors who provide co-op marketing funds usually make them available to most, if not all channel partners, but the percentage of money received may increase or decrease based on sales from their VARs, MSPs or other solution providers. The vendor or manufacturer often implements rules on how the funds can be used and pre-approval must be received prior to conducting any marketing programs. However, once the funds are received by the partner, they are then owned by the partner and cannot be taken away.
When deciding whether to fund your channel partners’ sales and marketing activities, providing MDF vs co-op funds does not have to be an either/or decision. Some vendors and manufacturers do offer both. You can select a small group of channel partners with the largest sales potential to receive MDF funds and then they, as well as a larger group of channel partners, will receive co-op funds as a percentage of future sales.
Why Your Reseller Program Should Include Channel Marketing Funds.
An indirect channel program that includes financial support from a vendor or manufacturer can be a win-win for both the vendor and the channel partner, growing sales and revenue for both parties. It enables you to:
- Acquire new customers more quickly by launching your products or services into markets and industry verticals that are already managed by your channel partners.
- Use as a recruitment tool to attract new VARs, MSPs, and other providers to join your indirect channel sales team.
- Encourage channel partners with limited financial or human resources to participate in vendor funded marketing campaigns which they would otherwise have been unable to afford.
- Strengthen your brand messaging and build awareness with pre-approved, templated marketing materials which can be easily customized and implemented by channel partners.
- Boost use of a specific product by select channel partners to increase sales or open markets for specific types of channel partners such as MSPs or in specific regions such as the Southwest U.S. or New England.
- Guide marketing spending by your partners to those programs (like PPC, trade shows, webinars or email) that you have determined to be more successful and increase sales.
- Work with partners to cross-sell, up-sell or bundle your products or services to more quickly and easily sell into their current customer base.
What Your Channel Partners Really Want. (Hint: It’s Not Just About the Channel Marketing Funds.)
Why Funds Go Unused.
The actual amount of MDF and co-op marketing funds that go unused each year varies from tech industry report to tech industry report, but it is said to be up to 50%. That translates to billions of dollars each year that channel partners are not taking advantage of. Why?
- Limited Resources: Smaller partners often do not have an employee who is responsible for marketing or vendor relationship management.
- Lack of Understanding: They are not knowledgeable about all of the partner benefits available to them and do not know that there are funds available for their use.
- Inexperience: Many channel partners, particularly smaller firms, confess that they are not experienced at marketing and that managing existing customers and converting current leads are more important than developing a marketing campaign.
- Limited Time: A vendor who approaches them to offer MDF funds to increase sales towards the end of a quarter does not give the partner enough time to create and implement a successful campaign.
- Swamped: Partners must manage multiple vendor relationships and can easily become overwhelmed with program management and clerical tasks.
- Continuous Modifications: Vendors who make continual changes to their partner program or specific requirements are not appreciated by their channel partners.
- Bureaucracy: An excessive amount of paperwork for the partner to complete to receive reimbursement for their efforts.
- Hurry Up and Wait: Partners must quickly complete paperwork to approve the development of a marketing program but are required to wait for long periods of time to receive funds/payments for completed activities.
What Channel Partners Really Want.
Through industry surveys, partner communities, channel advisory boards, and other groups, channel partners are telling their vendors what they want in an ideal partner program. Are you listening?
- Have a real relationship with your channel partners. Don’t just dump your program on us and walk away. Team up with us as business partners. Continuously communicate new information, provide input on how we can be more successful, keep your word and work with us to build mutual trust.
- Simplify your partner program. Complicated programs take time to administer and are difficult to manage. Make it simple to implement programs, request funds and put in a claim. Then, send your payment to us within a month.
- Let your partners own their customers. Never get in between the relationship that we have built with our customers. Know that we understand how to best communicate with our customers and allow us to do that with customizable messages and materials.
- Enable automated management and processing. Enable us to manage our program participation - tracking, reporting, payment processing, approvals, and claims - quickly and easily online.
- Cash is king. Whether implementing a sales contest, SPIF or co-op marketing program, pay us in cash rather than an account credit or some other form of payment like a prize.
MDF and Co-Op Marketing Best Practices.
At the end of the day, channel partners want your MDF and co-op marketing program to be simple, adaptable and based on mutual trust. Here are some best practices to help you do that.
Customization of materials, messaging and marketing methods is key to the development of a successful channel marketing strategy. It should be a joint process.
Because your channel partners have deep, long-standing relationships with their customers, they are able to provide you with insights into what messages and materials work and what doesn’t work. Listen to them and incorporate their thoughts and recommendations into your messaging.
Give them the ability to customize materials you have already created by adding their contact information and ways in which they differentiate themselves from their competitors.
Ease of Use:
No matter how many templates, training presentations and promises of money you offer to your channel partners, if your partner program is not easy to use, your partners will not take advantage of it. This will result in slow or no sales for your business.
Make sure your program guidelines are understandable and to the point and that all prerequisites and expectations are clearly spelled out.
Offer one central online portal or hub where all partners can go to manage their account, submit customer data, apply for funds, track marketing campaign approvals, and financial payouts, initiate technical certification procedures and generate customized collateral.
Speed up your review and approval process by shrinking the number of documents that must be completed by your partner each time a claim is made. Remember, they are not just requesting reimbursement from your company but from the other 13 vendors they have business relationships with as well.
Making sure that your partners feel they are valued members of your channel partner program is critical.
If you have the resources to assign a member of your channel sales team to each partner as their account manager, this would be ideal. If that is not possible, be sure to always provide to your partners the different ways in which they can quickly and easily reach your channel team.
Promote active and consistent communication between your team and that of your channel partners. Two-way communication conducted when your channel program is just getting started will ensure that partner insights are incorporated into your messaging and materials to potential customers. Communication throughout the life of your partnership will assist your partners in selling more but also help you uncover business challenges which should be quickly resolved.
Encourage continuous training, industry education and technical certifications to increase product implementation by partner employees and acceptance by customers.
To get an accurate understanding of the success of partner sales and marketing efforts and ultimately the effectiveness of your financial investment, you must implement closed-loop reporting. This means that you collect and analyze sales and marketing reporting data to determine the ROI (Return on Investment) and modify activities accordingly to attract and close the most qualified leads.
Require that your channel partners provide an estimated ROI when submitting an initial request for marketing funds or a specific campaign. Ask that the marketing team report on leads as they are received. The partner’s sales team should also be reporting back to its marketing colleagues on the quality of the leads and the number of qualified leads which eventually converted to sales.
You can use this data collected across all partners to develop a road map of successful campaigns and an understanding of the types of customers who are more likely to convert – developing a more accurate buyer persona. As a result, you may choose to adjust how MDF and co-op marketing funds can be used to ensure that partners attract more qualified leads and sales is able to close them more quickly.
With hard work and planning, a relationship of understanding, mutual trust and give and take, this can be a win-win for both you and your channel partners.
Now that you have a better understanding of the differences between MDF and co-op marketing funds, know what your channel partners are really looking for, and some best practices, it is important to understand how to actually implement a successful indirect sales and marketing strategy. We will cover this is in a future post.