Like many professions, channel marketing has a lot of acronyms that can make your head spin. RFP, ROI, KPI, YoY — the list goes on. (And let’s not forget MSP, VAR, and SPIFF!)
Among these acronyms, one that frequently surfaces is MDF.
In this post, we’ll explore the ins and outs of MDF marketing and show you how it can fuel your revenue growth through effective channel partner collaboration.
MDF meaning
Marketing development funds (MDF) are funds allocated by companies that sell through intermediaries like agents, dealers, and distributors. These funds empower local partners to implement marketing programs that drive sales and increase brand awareness at the local level.
Like co-op funds, MDF is crucial for empowering partners to hit their targets. For example, when a company launches a new product or service, MDF enables channel partners to tap into their regional customer base and generate sales in that specific market. But let’s dive deeper into the intricacies.
How does MDF marketing work?
While all MDF programs vary in their rules and guidelines, all programs follow the same flow.
Here’s how it works:
- Proposal: The affiliate makes a proposal asking for funds to use on a specific marketing activity.
- Allocate MDF: You allot the affiliate a certain amount of market development funds.
- Sell: The affiliate carries out the agreed-upon marketing activity.
- Claim: The affiliate makes a claim to prove they completed the marketing activity in accordance with program rules.
- Reimburse: You reimburse the affiliate for the money they spent on their marketing.
MDF marketing examples
In practice, MDF marketing encompasses a wide range of initiatives. Channel partners leverage marketing development funds to create marketing materials such as email campaigns, direct mailings, webinars, and radio spots. MDF covers expenses associated with planning client-facing events like lunch-and-learn sessions or participating in tradeshows and conferences. Whether it’s admission fees, travel expenses, or virtual event costs, market development funds support these crucial marketing activities.
Companies often tie MDF allocation to performance to ensure measurable results, requiring partners to demonstrate how their initiatives will drive demand generation and sales. It’s important to note that marketing development funds aren’t for subsidizing salaries or covering lunch expenses. They are exclusively for marketing activities that help move the needle.
Expanding the definition of MDF
Market development funds aren’t limited to monetary resources. Companies can assist their channel partners by providing knowledge-based MDF, such as sales leads, direct mailers, and HTML marketing materials. They may offer financial rewards to partners who show outstanding revenue performance and reach a specific status in the channel partner program. The goal is to empower partners who contribute to the vendor’s business growth. So, if an affiliate demonstrates value, corporate will be more than willing to invest in your success.
Benefits of MDF marketing
When you provide your affiliates with marketing development funds, you tap into a wide range of advantages for your brand:
- Greater brand awareness: MDF encourages affiliates to promote your brand at the local level, resulting in increased brand visibility.
- Increased revenue: When your partners use MDF to invest in their local marketing, you’ll see more revenue growth for your brand.
- Stronger partnerships: Research shows that when affiliates are given marketing funds, they perceive corporate as being more committed to their success.
- Increased compliance: Because your partners must adhere to your MDF program’s rules, you can expect greater marketing compliance.
- Greater loyalty: When you give your affiliates MDF, they have more incentive to promote your products over your competitors’.
Contrasting co-op and market development funds
While co-op funds and MDF are sometimes used interchangeably due to their similarities, it’s crucial to understand their critical differences:
- Allocation: Co-op funds are provided to partners after sales as retroactive reimbursement. On the other hand, MDF is allocated to partners before their sales and marketing initiatives begin, allowing for proactive planning and execution.
- Ownership: Co-op funds belong to the channel partners once granted, as they are accrued based on prior sales. MDF is allocated at the vendor’s discretion, depending corporate priorities (like sales and demand generation) or affiliate asks.
- Duration: Co-op programs are always on, typically for long-term marketing activities. MDF often supports shorter-term, campaign-based initiatives like webinars or tradeshow attendance.
- Accruals: Co-op funds accrue over time depending on a predetermined cadence, while MDF does not accrue.
Finding the right fit: co-op, MDF, or both?
Companies don’t necessarily have to choose between co-op and marketing development funds. They can provide MDF to a select group of partners with high sales potential while offering co-op funds to a broader range of partners based on a percentage of their future sales. This comprehensive approach ensures both targeted investment and broader support for partners.
Overcoming MDF underutilization
Interestingly, both MDF and co-op funds are often underutilized. In fact, about 60% of MDF dollars go unspent.
The culprit? Flawed MDF programs.
71% of affiliates to experience difficulty using their marketing funds due to outdated fund management programs and complex navigation. Plus, many companies struggle to educate their partners about their available MDF and co-op funds. As a result, a significant portion of these funds remains unused.
That means to ensure your partners use their MDF, you need to streamline your MDF program. Here are a few ways to simplify your processes:
- Cut down requirements: MDF rules are necessary, but if you set too many rules, your partners may not think making a proposal is even worth it.
- Limit layers of approval: Try to involve as few people in the fund approval process as possible for quick approvals.
- Make rules easy to understand: Your MDF rules should be clear, concise, and easy to understand. If your rules are too complex, your affiliates won’t bother going through the MDF process.
- Reduce approval times: Cut down MDF approval times to between 24 and 48 hours.
How to create an effective MDF strategy
If you haven’t established an MDF program, there are a few things you’ll need to do to get started. Here’s the best way to build your MDF strategy.
1. Establish rules and processes
The most important part of your MDF program is setting clear rules, processes, and guidelines. This ensures that your affiliates understand what’s required of them while holding people accountable on the corporate side.
When it comes to establishing your program, you should leave no stone unturned. Here are the questions you’ll need to answer to create a successful program:
- Which affiliates quality for MDF?
- What marketing activities will you reward?
- How much MDF will you give your partners for each activity?
- How will you track MDF use?
- What are your compliance guidelines?
- What documentation will you require for claims submissions?
- What’s the deadline for submitting claims?
- Who will be involved in the approval process?
- How will you reimburse your partners?
Once you determine these rules and systems, your program will be in good shape.
2. Provide marketing materials
Make it easy for your affiliates to promote your brand by providing them with pre-approved marketing assets instead of requiring them to create their own. You can also build flexible templates your affiliates can easily edit while ensuring assets still look great and adhere to compliance standards. The easier you make the process, the more willing your partners will be to market.
3. Track marketing performance
The last (and perhaps most important) part of your MDF strategy is measuring local marketing performance. It’s not enough to know where your marketing dollars are going — you should also be able to pinpoint how these funds are making an impact. By tracking and evaluating your affiliates’ marketing outcomes, you can better determine which tactics are working and which aren’t, then tweak your program accordingly.
The power of MDF program management
Effective MDF program management is vital to achieving optimal results. These programs help vendors and partners increase sales, drive demand generation, and track spending while measuring the impact of marketing initiatives. By carefully allocating funds and monitoring results, companies can maximize the return on their MDF investments and gather valuable insights to shape future programs.
Discover the right MDF strategy for your brand
If you’re curious to explore whether MDF program marketing fits your brand, reach out to BrandMuscle. We’re experts at building successful MDF programs and leveraging our through-channel marketing automation (TCMA) platform so you can activate your brand locally. Unleash the potential of MDF marketing, and let’s drive growth together.
Book a demo or learn more about our fund management solution.
