According to channel industry observer CRN, trends show channel partners reducing the average number of vendors they work with from 18 to 14. IT vendors are therefore faced with more challenges when recruiting channel partners. In order to better attract prospective channel partners, 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. This post defines these financial incentives and their differences.
It is quite common for the terms MDF and co-op marketing used interchangeably, but to do so is actually inaccurate, as they are acquired by channel partners in different ways and at different times. The key difference between MDF and co-op marketing funds is that a vendor will offer MDF funds to channel partners before any sale has taken place (usually as part of a marketing program with defined criteria) whereas co-op funds are given after sales have taken place. For example, MDF funds are commonly provided to a select group of channel partners to kick-start and/or accelerate sales, deployments, or consumption of products or services by their customer base. Co-op funds, on the other hand, are given to channel partners who have already sold a vendor’s product to encourage them to further market and sell more of that vendor’s offering.
- Discretionary funds offered to specific partners who meet criteria established by the vendor.
- Negotiated and given in anticipation of future sales.
- Controlled by vendor.
- Provided as an incentive to sell more.
- A percentage of previous sales.
- Controlled by channel partner.
Market Development Funds (MDF)
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, deployments, or consumption for a specific product/service or looking to penetrate a new vertical market may grant MDF to a partner who has proven their expertise or sales prowess or has access to a strategic customer. MDF is given at the vendor’s discretion to select channel partners prior to any sales taking place and the amount can vary from partner to partner. Specific sales and marketing plans as well as ROI are discussed before the funds are given, and the partner must provide the vendor with detailed reporting of outcomes.
Co-op Marketing Funds
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.
MDF or Co-Op Marketing Funds?
Whether to provide MDF vs co-op marketing funds to your channel partners 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.