August 2011 Feature

Incentives or Investments? How to Use Co-Op and MDF Programs to Achieve Sales Objectives – Insights from Microsoft

by Anna Johnson

Co-op and MDF programs are the most popular channel marketing programs offered by vendors. Despite their popularity, these programs are often ill conceived by vendors and consequently misused by channel partners. Vendors often leap before they look by implementing and executing these programs without asking themselves two simple questions. “What are our objectives and how do we design marketing programs to meet them?”
The Top 10 Focus Areas- 2011
Channel Management Insights sat down with Mike Haines, Director of Worldwide Strategy for SMB channel incentives at Microsoft to learn what common mistakes vendors make when designing their Co-op and MDF programs and how best to avoid them. With over 30 years of executive channel management experience including six years at Gartner, Mike Haines has provided sound advice to Fortune 500 companies on how to optimize sales and marketing through the channel.

A is for Alignment

Before you can decide if an MDF or Co-op program is best, first assess what your overall objectives are with the channel. Too often there is a disconnect between the sales objectives and how marketing programs like Co-op and MDF are used to help meet them. “Always ask yourself, what results do I want to see from the market,” Mike advises. “Once you establish the goals, find the partners in your ecosystem that serve that market and then design the program to drive the results through that partner segment.” Proper alignment between these three key components will put you on the right path to optimizing your program dollars.
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Co-op, MDF, It’s All the Same…Isn’t It?

Let’s put this common misconception to rest, Co-Op and MDF are not the same. They serve two totally different purposes. One is an incentive program and one is an investment program. Can you guess which one is which?

“Market development funds are investments you provide up front in exchange for the partner agreeing to do a marketing or training/readiness activity,” says Mike. “Co-op funds are incentives that you pay partners after sales results. In a Co-op program, partners earn the money based on sales. It’s their money to spend,” Mike continued. “That’s the beauty of Co-op.”

Keeping in mind this distinction between Co-op and MDF, what measurements would you employ to determine their effectiveness? “For MDF, I recommend using the same metrics you would use as if you were running the program yourself,” offers Mike. For example, if you invest in an email campaign with a partner, measure cost per open and cost per click to not only measure the effectiveness, but to ensure that the money is spent on the intended purpose. “For Co-op, keep things simple by just asking the partner to provide proof that the activity was done to claim the incentive.” Remember, Co-op funds are partners’ money and it should be easy for them to get access to it just like a bank account or credit card.

Budget Formula for Co-op and MDF

How do you decide how much investment and incentives you allocate for your MDF and Co-op programs? “It’s all about keeping your budget proportionate based on your goals and past sales indicators,” says Mike. For example, if your company pushes 70% of the sales through the channel but your channel marketing budget is just 35% of your overall marketing budget, then the investment you’re making in the channel is disproportionate to the sales. “Before you start thinking about allocating funds to MDF and Co-op, take a step back and make sure your overall marketing budget is balanced between direct and channel based on sales performance,” Mike concluded.

The other criteria to consider when funding MDF and Co-op are based on your goals. For example, you may be entering a new territory or targeting a new industry. “Anytime you’re entering a new territory or industry, your investments are going to be higher than a territory that’s already saturated,” advises Mike.

Conclusion

It’s easy to get dragged down by the details associated with your MDF and Co-op programs. After all, there are a LOT of details to keep track of. However, heed Mike’s advice and take a bird’s eye view to evaluate whether or not your MDF and Co-op programs easily tie into your overall sales objectives. If not, consider the following to optimize your channel marketing programs:

  1. Determine the sales goals, find the right partners to help you achieve them and then design the MDF and Co-op programs to enable your partners.
  2. MDF and Co-op are not the same. Use MDF programs as investments and Co-op programs as incentives.
  3. Keep your channel marketing budget proportionate based on your goals and past sales indicators.