Channel Mechanics

Managing MDF Risk and Return

Channel Mechanics

In our first blog on the topic of MDF, we looked at MDF Best Practices and stressed how a well-managed Market Development Fund program can help both vendors and partners achieve optimal return on the funds they jointly invest.  In this post, Part 2, we focus on some MDF challenges that often plagues channel management teams who are responsible for good stewardship of marketing budgets.


The Issues and Challenges around sound MDF Budget Management fall into four major categories:

    1. Poor Program Design
    2. Faulty Reporting Process
    3. Lack of (or Outdated) Tracking Systems
    4. Poor Communication


The above four factors are the root causes of most of MDF’s challenges. But people rarely talk about them using the above terminology for two reasons:

a) Firstly, there is a wide variance in how these issues manifest as “symptoms.” And

b) Secondly, the source of the MDF “pain” can come from a variety of sources, both inside and outside your organization:

– The channel management team may be frustrated by an inability to keep track of funding.

– Finance may be resisting the program because historically they lacked the ability see the financial returns of MDF investments”

– Partners may have difficulty understanding or participating in the program.


Either way, the net result is about the same. Channel Managers feel they are being hijacked by a program that seems to have a life of its own, with little accountability and sub-optimal ROI. The net guidance here is: Keep your eyes and ears open!! But what to watch and listen for?


9 MDF Program Management Challenges


I’m sure some of these will sound very familiar…while others might be waiting just around the corner!


1. “I can’t really demonstrate a true, financial ROI”

Most MDF management tools, such as spreadsheets or even “home-grown tools” have limited capability. Therefore they can only provide some indication of return, usually expressed as number of leads generated or some other quantifiable measure.  In order to push the ROI analysis to the next level, vendors need to utilize an automated channel platform that links MDF to their sales management platform.  That way, they can measure not only the leads, but also the conversion to real revenue improvement.


2. “Corporate thinks that Market Development Funds are just a “slush fund” for partners.  They say MDF is a waste of money.”

Unfortunately, a major MDF challenge is that MDF has this reputation in many companies. For years, an inability to track the use of funds and ROI has led to widespread program abuse. One of the most frequent of which was “funded head”. Here the vendor (or the vendor and partner together) commits to funding a sales or technical resource. However without good tracking, this investment often fell apart.  The “funded head” would quietly fade into the broader partner organization. If this perception of MDF exists in your organization, look to technology for a make-over.  New channel automation software platforms hold partners accountable for the return on vendor investments, making tracking much easier and making payout dependent on performance.


3. “Finance doesn’t like the negative impact on revenue that an MDF program can cause”

MDF Funds negatively impact revenue when they are invested in activities classified as “contra revenue.” This is where an incentive by a Vendor to a Partner is presumed to be a reduction of the selling price and is characterized as a reduction of revenue. A Funded Head is a classic example of this initiative. Most conventional marketing activities are classified as “expense” and therefore impact profitability. There is no hard and fast rule that you have to fund every initiative your partners ask for. A good MDF management platform will allow for parameter setting and make sure you keep to them.  Thereby eliminating any contra revenue roadblock concerns by designing a program that only funds initiatives classified as “expense.”


4. “We’re getting lost in a sea of emails, spreadsheets and notes from phone calls. I don’t know where I am in the budget on any given day.”

If you are saying this, your MDF program probably has a bad reputation. Most likely, partners view you as less reliable – and less responsive – than your major competitors.  This perception can impact both the partner MDF program participation rate as well as overall share of partner business. To help you improve your effectiveness with partners and your value to your organization, it is critical to pull all of your MDF financials together in one place so that everyone who “needs to know” has clear and real-time access to:

– What’s being invested

– How the funds are being invested

– Expected return

– Actual return

– Investment timeline

It’s definitely time to evaluate a channel automation platform that takes in business goals/expected outcomes for MDF, program design and KPIs for a successful program.


Eliminate MDF Challenges by utilizing a channel automation platform. Discover how market-leading vendors automate and manage their MDF programs. Contact Channel Mechanics today 


5. “Some partners are bypassing the approval process and are going straight to their “friends” for approval.”

Are they doing this because they need a faster response time from your organization? Or simply because they want the vendor to fund an initiative that is not consistent with program guidelines? Either way, an automated platform will make it virtually impossible for this MDF challenge to occur. How you ask? By delivering relevant funding statuses to each partner, in real time, and lets you customize the approval and sign-off process. Therefore, payout of funds does not proceed unless until the required sign-offs. Additionally, if there is a concern, the platform will allow you to relay that information so that the partner can make necessary refinements.


6. “Nobody can explain the MDF Program”

Is this because it’s too complex for your organization and partner ecosystem?  Or simply because there has been no structured training and communications plan around the program?  An automated platform can simplify and clarify the program and can provide a good structure for organization and partner training.


7. “Our Program has a low overall ROI”

It’s important to know how the ROI is to be measured prior to allocating MDF dollars. Consider MDF allocation to a partner to attend an event. How do you measure the ROI on this? Could it be no. of attendees at the event? No. of qualified leads from the event? A target of specific people to meet at the event? Other?  In general, there are several underlying causes for a low ROI:

The demographics of the event – or publication etc. – do not match the demographics of your target market. If you suspect this is the case, require more information upfront.  You may want to ask:  “What titles does the event typically attract?”  “What is the anticipated attendance?”  “Who reads the publication?

Partners lack true marketing expertise. The materials they produce may not have the impact you both expect. Prepared templates and training in how to use them will help partners deliver a clearer, more compelling message.

Partners exaggerate expected ROI, whether accidentally or on purpose, to make their request more attractive. This could be a training issue or a process issue.  If it’s the latter, an automated platform will let you capture both projected and actual ROI in the same place.  If the actual ROI falls far short of the target, you then have the option of adjusting your funding level accordingly.


8. “We’ve Benchmarked and are imitating “Best in Class,” but partners just aren’t’ participating” 

Low program participation rate can be caused by:

– Poor vendor position in the channel. If you have a well established partnership but are only at less than 5% of the partner’s business, you may not get the mind share you need for enthusiastic program participation.  Here, a complex program – or an unwieldy claims process – can spell participation disaster.  If you are in a low share position, don’t imitate the high share player’s program “bells and whistles.” Beat the competition on ease of doing business, by utilizing automation. However, if you are at 5% of the partners business and have a major scaling initiative underway, it’s less of a concern.

– Misaligned payout design. MDF has two major forms of payout. (1) accrual payout based on a percentage of each partner’s sales and (2) commitment of funds after a business case is approved.  Sometimes, in ecosystems where partners are “small” from a revenue perspective and the vendor has a relatively low share, the accrual method will not provide enough money for an individual partner to engage in meaningful marketing activities.  A business case driven model might produce better results.  The “con” is that this method only pays out MDF to a subset of partners rather than to all.


9 “I would like to allocate some MDF to support joint innovative projects with a small group of partners. My MDF program can’t do this?  Or can it?”

Your partner might want to offer your vendor solution with a particular service offering that, when combined, brings a new innovative solution to the market. An MDF Program could then be set up to do this and have different ROI parameters, set in advance, to help determine success and/or whether it should proceed in the future. If an “Innovation Development Fund” is strategically important to your organization, you can easily get started via a “carve out” of your current MDF program budget and make it available – and visible – to only those partners who fit the profile you create.


A key takeaway from this discussion is that, although your MDF challenges may come in many forms and from many directions, a good channel automation platform will help resolve many of these. For help in designing your MDF Program, check out my blog next week on MDF Program Design Best Practices.


Further Reading on MDF:

  1. The Benefits of Implementing an MDF Program
  2. MDF…Does It Need To Be This Complicated?
  3. Optimizing MDF Program Design
  4. Five MDF Best Practices
  5. How to Get the Most from Market Development Funds (MDF)
  6. Deliver and Track Market Development Funds (MDF) in Real Time


On Demand Webinar

  1. Guiding Principles for a Successful MDF Program

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