Like many professions, marketing is filled with acronyms: RFP, ROI, KPI, YoY. (And MSP, VAR, and SPIF!) You also hear MDF a lot. In this post we’ll explain what MDF marketing is and how you can use it to drive more revenue through channel partners.
Market development funds are funds provided by companies that sell through intermediaries—such as agents, dealers, and distributors—to use for sales and marketing programs.
A company’s ultimate goals are to sell more of their products and services, and to increase local awareness of their national brand. Like co-op funds, MDF empowers local partners to do just that. For instance, when a company launches a new product, MDF can enable channel partners to tap directly into their regional customer base and kick-start sales in that specific market. Here’s where it gets complicated.
In practice, MDF marketing efforts take many forms. Channel partners use MDF funds to develop marketing materials, such as email campaigns and direct mailings. They use MDF funds to produce webinars and purchase radio spots. Partners purchase sales lead lists with MDF. They use MDF to plan client-facing educational events, such as popular lunch-and-learn events, and buy booths at tradeshows and conferences. Events require admission fees, airline tickets, and other travel expenses. Even virtual events take time to plan, and time is money. MDF funds cover those expenses, before partners’ programs begin.
To help ensure that MDF initiatives produce measurable results, companies often tie MDF allocation to performance. That means MDF is usually granted in two ways. First, MDF funds are allocated automatically through sales. Second, partners with proven track records or sales prowess can apply for MDF as needed before starting their initiative. Companies allocate MDF funds strategically. In order for local partners to get their MDF request approved, they must show the corporate office that their particular initiatives will drive demand generation or sales. Then they track results. MDF is not for subsidizing salaries or paying for your lunch.
MDF funds aren’t always monetary. Companies can support channel partners with knowledge-based MDF, which, instead of dollars, can include sales leads, mailers for direct mail campaigns, and HTML marketing materials. Knowledge-based MDF funds also come in the form of financial incentives, which companies allocate to a channel partner whose level of revenue and certification have earned them a particular status within their channel partner program. Ultimately, it’s all about empowering partners who can help build the vendor’s business. Show that you can do that, and corporate will pony up.
MDF is one source of funding that vendors provide channel partners. Co-op funding is another. Although the terms co-op and MDF funds are often used interchangeably because of certain similarities, they are not the same.
Companies provide MDF funds to channel partners before sales or marketing take place, and they provide co-op funds after sales have taken place. Co-op is retroactive. It is reimbursement. MDF happens before partners’ initiatives begin.
MDF funds the development and execution of particular sales and marketing activities. That means that vendors and partners discuss proposed sales and marketing plans before corporate allocates the MDF. Corporate determines an appropriate amount of MDF. Once those programs are launched, partners provide detailed reports containing the number of leads received and customer conversion rates.
Partners accrue co-op funds as a percentage of their prior sales. Although companies offer co-op funds more broadly to most channel partners, the percentage of funds received may increase or decrease according to sales. Companies can institute rules dictating how the funds can be used, but once sent, co-op dollars belong to channel partners. The granter cannot take them back.
MDF is different. Vendors allocate MDF to select channel partners at their discretion, before any partner initiatives take place. And corporate can manage MDF funds during the partner efforts they fund, depending on sales and demand generation.
Because co-op marketing funds are accrued as a percentage of prior sales, vendors normally grant co-op funds to proven high-volume sellers, such as distributors, and partners who have already sold their product, which encourages them to keep marketing them.
Channel partners use co-op funds for long-term marketing activities, and co-op gets budgeted for a set amount. MDF dollars are often used for more short-term activities, including one-off webinars and tradeshow attendance.
Companies don’t need to choose one or the other. They can provide MDF to a small, select group of channel partners who have the largest sales potential while they provide co-op funds to a broader group of partners as a percentage of their future sales.
Interestingly, one factor that unites MDF and co-op funds is that both sources are often underutilized. Not all companies do a good job educating partners about the MDF and co-op funds that are available to them. When partners do utilize these resources, fund management programs are not always designed in a way that’s easy for partners to use. Poor navigation and archaic sign-ins can discourage usage, so upwards of 70% of co-op funds, and between 30% to 60% of MDF funds, go unused. That amounts to between $15 and $30 billion MDF dollars that could have been spent driving sales and local brand awareness.
Vendors allocate and manage MDF through a market development fund program. MDF programs are designed to help channel partners increase sales and drive demand generation, and allow both parties to track spending and measure results. Because to plan and budget your MDF, you have to track and analyze your results accurately.
Ideally, market development fund programs help both the vendors and partners achieve optimal return on the funds they’ve invested, and encourage fund usage.
Two other reasons why many companies don’t see adequate results from their MDF programs are that they weren’t strategic about allocating their funds, and they didn’t track the results of their partners’ marketing initiatives. A solid MDF management program not only encourages MDF spending and gets the most out of those dollars, it gathers valuable data that can shape their future MDF programs.
Hopefully that takes the mystery out of the acronym MDF. So the next time people ask you if you use MDF, don’t worry. It isn’t an experimental medication. It isn’t a trendy hypnosis treatment for anxious pets. MDF is a crucial source of funding that national companies can utilize to increase local success, and a type of underutilized funding that channel partners can receive if they just know the right questions to ask.