According to Forrester, high-performing organizations invest 23% more in market development funds (MDFs) than low-growth organizations.
So, does investing more money in partnerships mean you’ll get better revenue growth? Not necessarily. In order to become one of the top channel programs with the highest returns, you must consider what drives a higher return on investment (ROI).
Let’s explore what those high-ROI moves are and how to make them. But first, let’s get on the same page about the idea of MDF.
What is MDF?
Market development funds (MDF) (incorrectly called “marketing development funds”) are incentives offered to partners to help them execute marketing or sales actions that drive better sales performance.
These partners include independent resellers, distributors, ISVs, IHVs, VARs, OEMs, etc. MDF is one way you can encourage these partners to improve their performance while growing your business.
“To win partner mindshare and for future growth, companies must co-innovate, co-invest and collaborate across the ecosystem.” — Accenture, April 2021
What better way to co-invest than enabling your partners to implement better quality digital marketing, local advertising, webinars, email campaigns, conferences, etc., to drive more sales?
Could You Be Killing Growth and Partner Morale with MDFs?
Accenture’s research showed that 77% of partners have more choices of providers than they did 3 years ago. How can you step up to this stronger competition for partner mindshare without a solid strategy to allocate your MDFs?
In that same report, they revealed how 89% of partners are looking for new sources of growth due to pressure from customers to deliver customized technology-driven solutions. Not only will the right MDF strategy assist partners in delivering what today’s customers need, but it will also position yours as the brand of choice when recommending solutions to their customers.
But is providing MDFs sufficient in meeting your channel goals? No. There needs to be a careful execution of fund allocation to avoid:
- Wasting funds
- Stagnating growth
- Treating partners unfairly, and
- Dropping morale across the channel
So, what’s the best way to go about allocating your market development funds? Let’s dive into a straightforward step-by-step process.
5 Steps to Design an MDF Program for the Best Results
1. Figure out your funding structure
There is no one-size-fits-all structure for your MDF program. What works for one partner may not work for the other. So wouldn’t it make perfect sense to tailor your MDF strategy to specific partners/partner personas?
Think about your partners’ needs, co-building and co-selling strategies, and other sales and marketing activities necessary to meet sales goals. Then, develop several fund allocation structures that balance overall partner investment versus investments in individual partners.
Finally, decide on the structure that presents the best ROI for each of your partnership models.
2. Map out your MDF goals
What do you intend to achieve when you send out MDFs? Are those goals consistent with your business goals as well as your partner’s? First of all, without a goal, there isn’t any performance to monitor. Also, your partners will not be excited about achieving the goals you’ve set if it doesn’t directly benefit them.
For this step, you need to get to know your partners. What do they want to achieve? What do they expect from their providers/vendors? Are they satisfied with your current strategy and priorities? Align what you learn with goals (and micro-goals) that push your business forward.
3. Design your MDF budget
Your MDF budget will depend on your goals and business model for that financial year. But how would you design an MDF budget for allocation? What activities deserve the most attention? Which partners should take the bigger slice of the pie?
And how will you disburse these funds? On an accrual model or business case model? These questions need answers before you launch.
4. Create a partner qualification process
It’s a fact that not every partner deserves these funds. But how do you know which? Is there a pre-qualification process in place to assess your partners? And how can you do it in the smartest way that doesn’t hurt your relationship with them?
This is where partner performance data comes in. First, are you measuring the right metrics? Aim for the metrics that directly drive your goals for your MDF strategy. Use that to shortlist some candidates for MDF allocation.
Allow these partners to apply for MDFs. This application should outline
- What marketing and sales activities they want funds for
- What results they expect when these are funded, and
- How can this benefit your partnership
...as well as other requirements, such as “Have you completed our product training?”
5. Track ROI
For the previous steps, you needed to access historical data to properly assess and pre-qualify partners for MDFs. If this is your first time running a market development funding program, this is an opportunity to have all the data you need.
When your program goes live, start measuring partners' participation, engagement, and results. You’ll want an objective method to analyze performance. These will be KPIs that you and your partners agree on. Set up partnership check-points, measure goals vs actual performance, meeting cadence, etc.
What marketing activities brought in the most revenue? What partners showed exemplary initiative in driving sales? How well did partners utilize resources as a whole?
Do you really need to invest more? Or do you need to invest intelligently?
Partners need help to grow their business and your partnership. Therefore, it is important to find ways for collaborating, co-investing, tracking results, and continuously pivoting based on market data.