MDF Best Practices - An Executive Review
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This document provides an overview of best practices for managing marketing development funds (MDF) programs. It discusses how MDF programs are evolving to focus more on return on investment and partner needs. It outlines common elements of effective programs, including clear guidelines, good data, approval processes, coordinated messaging, and reporting. The document also covers classification of MDF expenses, investment benchmarks, governance practices, and tips to ensure compliance.
MDF Best Practices - An Executive Review
- 4. 13‐Aug‐1313‐Aug‐13 How Programs are Evolving 4 regular exceptions entitlement practices driven by shipment volume partner brand high expiry little or no measurement of ROI “my money" attitude less entitlement more discretion viewing the activity as a joint investment contra vs. marketing expense usage inconsistent budgets shrinking more focus control vs. engagement vendor money focus on ROI invest in highest returns auctioning investment Vendor brand needs economies of scale consistent visibility effective measurement much less budgets investment in channel behaviors size does not overcome quality driven by Partner brand needs Past Present Future © 2013 Birch Worldwide All Rights ReservedPage 4 |
- 6. 13‐Aug‐1313‐Aug‐13 6 Essential Program Features 1. Have a plan of what you want to achieve – create joint plans with your partners. 2. Good quality data ‐ know your partners and your marketplace. Systems are only as good as the data. Engage in market intelligence sharing. 3. Approve and manage all investments, ensure approval is real. Deliver brand focused marketing through the channel with maximum effectiveness. 4. Coordinate messaging with the right message to the right people at the right time. 5. Easy to follow processes for requesting, approving and claiming funds. 6. Program reporting that gives everyone access to management information not just data. © 2013 Birch Worldwide All Rights ReservedPage 6 |
- 7. 13‐Aug‐1313‐Aug‐13 From Our Experience We Know Vendor’s biggest mistakes. Difficult, complicated, unclear or overly restrictive guidelines. Too much control over how the funds are used. Failure to effectively distribute/ communication the program terms and conditions. Cumbersome, lengthy claims process and procedures. Poor or inadequate follow up on requests. Lack of access to available funds, historical data and reports. Failure to target the “right” Partner(s) with the funds. Flexibility is key. One size does not fit all. • Clear, concise accessible guidelines (kept it simple and sales friendly). • Provide online access to available funds and historical usage sales data. • Provide more input from the channel rep during fund usage decisions and marketing material creation. • Timely follow up and communications on requests. • Remove the administrative burden. • Share vendor’s corporate initiatives and how this will help. • Make the program and other sales support tools “functionally” available. Page 7 | © 2013 Birch Worldwide All Rights Reserved
- 9. 13‐Aug‐1313‐Aug‐13 SOX Concerns: Contra or Opex Page 9 | © 2013 Birch Worldwide All Rights Reserved Income Statement Revenue Gross sales Less sales returns and allowances Net sales Cost of Sales Beginning inventory Product Discounts Volume Rebates Sales Incentives Price Protection Deal Protection Trade‐in Programs Return Policies Training & Certification Demo Equipment Funded Headcount Plus goods purchased/manufactured Total goods available ‐ Less ending inventory Total cost of goods sold Gross profit (loss) Operating Expenses Selling Salaries and wages Advertising (web, print, broadcast) Catalogs Direct mail, email, e‐newsletters Seminars & webinars Telemarketing Customer events Sales meetings Sponsorships Commissions Advertising Depreciation Total selling expenses General/Administrative Salaries and wages Employee benefits Payroll taxes etc… Total General/Administrative expenses Net Income (Loss) Above the Line Below the Line Contra Revenue Operating Expense
- 10. 13‐Aug‐1313‐Aug‐13 Revenue Reduction or Operating Expense The general consensus is that cash consideration (including a sales incentive) given by a vendor to a Partner is presumed to be a reduction of the selling prices and should be characterized as a reduction of revenue (aka Contra Revenue). This presumption is overcome to the extent that, both of the following conditions are met: 1. The vendor receives, or will receive, an identifiable benefit (e.g. services or advertising) in exchange for the payment. However, the identified benefit: a. must be sufficiently separable from the Partner’s purchase of the vendor’s products such that the b. the vendor could have purchased the benefit from somebody other than one of its Partners; 2. The vendor can reasonably estimate the fair value (e.g., cost) of the benefit (e.g., proof of cost/performance). Here are a couple of examples: Partner Advertising ‐ You receive from the Partner an identifiable benefit (advertising) in return for the MDF. That benefit is sufficiently separable from the Partner’s purchase of your products because you could have purchased that advertising elsewhere. Therefore, the first condition of the model is met. As long as the fair value of the advertising is equal to or greater than the MDF payment, the payment should be characterized as an operating cost. Funded Head ‐ The first condition of the model is not met because you receive no identifiable benefit in return for the payment that is sufficiently separable from the arrangement to sell products to the Partner. That conclusion is based on two facts: (1) any benefit received by you cannot be separated from the arrangement to sell goods to the Partner and (2) you could not enter into such an arrangement with a party other than a reseller of your products. The funded headcount payment therefore should be characterized as a reduction of revenue. Page 10 | © 2013 Birch Worldwide All Rights Reserved
- 12. 13‐Aug‐1313‐Aug‐13 General Guidelines Accruals range from 1% to 6% with ⅔’s of programs between 1.5% and 3%. ISV/OEM: • 2‐3% of sales is a reasonable marketing budget. • Budgets for these partner categories are built up based on activity, not simply accrued based on sales. VAR/SP • 4% of sales is a reasonable marketing budget. • There is an expectation that this will be matched by partner funds (4%+4%=8%). • Additional 2% for rewards and rebates for attainment of program levels based on partner commitment. © 2013 Birch Worldwide All Rights ReservedPage 12 |
- 13. 13‐Aug‐13 Investment Benchmarks © 2013 Birch Worldwide All Rights ReservedPage 13 | Marketing Activities Focus Partner Types % of Revenue Types of Funds Funded by Marketing Through / With Partners Lead Generation Solution Provider 5% MDF 50% ‐ Contra 50% ‐ Mkt OpEx Partner to match funds Distributor 1% to 5% based on performance (avg. 2.5%) MBO Rebate 100% Contra Volume Reseller 2.5% Investment 100% Mkt OpEx OEM 5% MDF OpEx 18% Rebate Contra Global Alliances N/A Investment Corp & Mkt Resellers 1% (Silver) 2% (Gold) Co‐op Mkt OpEx Marketing to Partners Enablement, Awareness & Motivation All 1% Partner Summit, Incentives Various Other Infrastructure All 1% Investment Corp & Mkt
- 15. 13‐Aug‐1313‐Aug‐13 Establish Compliance Checkpoints Page 15 | © 2013 Birch Worldwide All Rights Reserved Program Website Program rules Eligibility and access Budget management Authorization routing Activity planning Request amount Activity start & end dates Communications and notifications Reporting and measures Program Managers Activity Authorizations Authorization limits Budget approval Audit Team Internal authorization Submission deadlines Activity dates Proof‐of‐performance Proof‐of‐expense Available funds Escalations Checkpoints
- 16. 13‐Aug‐1313‐Aug‐13 Avoid These 5 Common Mistakes Mistake #1: Payments processed against insufficient or inappropriate proof‐of‐performance. Mistake #2: Ineligible activities/items expensed with claims. Mistake #3: Escalated exceptions to policy approved by “Channel Managers” and/or not documented. Mistake #4: Payments made to non‐partner entities without due diligence to ensure their legitimacy. Mistake #5: Payment made to beneficiaries (e.g., 3rd party vendors) other than eligible partners (if not allowed). Page 16 | © 2013 Birch Worldwide All Rights Reserved
- 17. 13‐Aug‐1313‐Aug‐13 10 Best Practices 1. All agreements and contracts include a “right to audit” clauses 2. Policies are clearly written (requirements, expectations, and consequences for non‐ compliance) 3. Monitor and assess validity of partner reporting and related compliance activities 4. Non‐compliant transactions/ activities are identified and reported 5. Use audits for high risk activities and continuously monitor data 6. Establish a formal escalation review process to handle out‐of‐ policy requests. 7. Conduct formal training program for channel partners and channel managers 8. Establish ROI measures to assess the effectiveness of investments and partner usage of funds 9. Communicate process and control procedures 10. Have resources for best practices advice Page 17 | © 2013 Birch Worldwide All Rights Reserved