Historically, vendors make investments in channel programs and partners with short-term goals in mind. However, late last year, we offered several predictions for 2023 that foresaw this mindset changing. We turned to the industry to find out if we were right. How are attitudes about MDF shifting in today’s channel ecosystem?

To answer this question, we spoke with six industry experts. Our panelists include:

Want to skip ahead? Check out six tips for MDF and partner investment in 2023:

  1. Prioritize Investment in MDF Over SPIFFs
  2. Demonstrating ROI From MDF Is Challenging, But Doable With the Right Tools 
  3. Tailor MDF Activities to Partner Type & Maturity Through Segmentation 
  4. Remember MDF Is a Long-Term Investment 
  5. MDF Programs Are No Longer Optional for Partner Programs
  6. Invest in Partner Success Beyond MDF 

What Are Market Development Funds (MDF)?

Market development funds are resources that vendors provide to channel ecosystem partners to create or improve sales and marketing initiatives. Historically, MDF has been doled out as monetary reimbursement of pre-approved marketing activities like customized collateral, email campaigns, or tradeshow attendance. Lately, more creative vendors and suppliers are using those funds to cover the cost of training or services for their partners in the form of workshops or digital marketing services provided by a consultant or agency.

MDF is typically a component of a channel partner marketing program and part of channel marketing budgets. MDF requests and allocations are reviewed and approved by channel marketing departments but may also require approval from financial or executive decision-makers in vendor organizations. Typically, MDF transactions between a vendor and a partner are communicated through a channel account manager (CAM). All of these touchpoints can lead to poor communication, unclear requirements and delays in reimbursement, making it a frustrating process for both suppliers and their partners.

MDF is often an earned benefit for partners that have met established qualifications. For example, a partner program with metal levels (bronze, silver, gold, platinum, etc.) may offer MDF only to partners that have achieved the gold level or higher. Qualifications will vary by vendor but typically include some combination of sales or revenue attainment and technical, marketing or sales certifications by the partner’s staff.

Partners can use MDF for a variety of vendor-approved activities, including, but not limited to:

  • Webinars
  • Vertical or industry-related marketing and sales campaigns
  • Booth space at tradeshows
  • End customer events such as lunch-and-learns or in-person training
  • Sales lead list rentals
  • Telemarketing campaigns
  • Marketing or sales-oriented vendors, consultants and agencies

MDF is more readily available from partner programs that are more mature or operated by enterprise or mid-market firms because MDF requires financial outlay with no guaranteed return. Newer or smaller programs may be unable to offer MDF as a partner benefit until the channel generates enough cash flow to justify it.

6 Tips for Channel Partner Program MDF & Partner Investment

How should your partner program invest in its partners to drive marketing and sales? Here are six best practices for MDF and partner investment that you should keep in mind.

1. Prioritize Investment in MDF Over SPIFFs

A common short-term sales incentive for partners is a sales performance incentive fund (SPIFF), which awards a monetary bonus upfront at the point of a deal close. A SPIFF is typically a monthly multiple of the deal value in the tech channel. For example, a “6X” SPIFF pays out six months’ worth of the monthly recurring revenue (MRR) to the sales partner at one time once the contract is signed.

When faced with a limited budget for incentivizing partners, you should prioritize MDF over SPIFFs. “Having run channel programs for several SaaS providers over the years, I have, invariably, been faced with the decisions: MDF or no MDF, SPIFF or no SPIFF,” says PartnerReady’s Plum. “The second one is easy for me. No SPIFF.”

There are implicit dangers of relying too heavily on incentives like SPIFFs because it can be difficult to tie them to demonstrable activity in a partner’s pipeline. “The solution that a partner offers his [or] her client should be dictated by best possible fit, and not a ‘kicker’ for the recommendation,” says Plum. “Partner experience (PX) is driven more by the support they receive than the bonus they are promised.”

Support comes from all aspects of a partner program, such as high-touch account management, adequate marketing and sales enablement materials, sufficient training and certifications, and, of course, MDF.

2. Demonstrating ROI From MDF Is Challenging, But Doable With the Right Tools

A common challenge that programs encounter is the direct attribution of MDF to sales activity. “Once you’ve given MDF to a partner, then what?” asks Steele. “How do you qualify that it was a good investment? Do you have a PRM, so the partner can enter leads from the MDF activity so that they can track it?”

Measuring ROI remains one of the biggest challenges for MDF programs because many existing processes and systems still fail to track and report attribution data. Vendors, however, must rise to the occasion and figure out how to tie MDF disbursement to quantifiable metrics that show finance teams why it’s worth making the investment.

“When a partner program is unable to demonstrate results and ROI from MDF activities,” says GoTo’s Van Dover, “it can often lead to decreased funding.”

Partners are busy, and MDF programs can often be time-consuming to navigate. Vendors also have to remember that, in most cases, partners aren’t just selling their solutions. A vendor is just one part of an overall stack the partner is weaving together to create a solution for their clients. Because of this, says Steele, it can be hard for partners to align specific leads back to specific marketing activities. If you’re lucky enough to have enough channel staff to take a high-touch approach with partners, that risk is mitigated somewhat through continuous conversation. But vendors that struggle with adequate account manager or sales rep coverage rely on partners to provide that deal information, which leads to a lack of attribution and onerous proof of performance (PoP) processes.

It’s even more difficult to track ROI when you’re relying on manual data entry instead of automated systems. Tools like partner relationship management (PRM) solutions can help streamline tracking information for channel account managers (CAMs) and help build the case to secure more funding for worthwhile market development efforts. For example, PRMs streamline deal registration by moving it from spreadsheets to an online portal so CAMs and partners can easily log new deals and deal sources. In turn, this enables your channel leaders to run reports based on attribution, offering total visibility into how MDF activities are performing.

When it comes to tracking ROI from MDF activities, our panel offers a few tips:

  • ·Have a clear understanding of the results you want to see from your MDF investments beyond just “increasing pipeline.” New leads? Nurturing existing leads through the sales process? Expansion into new verticals or geographies? You can’t measure ROI until you know what you’re hoping to gain on a granular level.
  • Once you’ve set those expectations, make sure they’re communicated effectively. One of the biggest complaints partners have about vendor MDF programs is that it’s often unclear what activities qualify for MDF and which don’t. On top of that, the process of getting reimbursed from providers for those activities can be muddy and take too long to complete. If partners don’t understand your program, they won’t take advantage of it.
  • Carefully monitor the long-term results of your investment. MDF activities aren’t a “one and done” strategy but typically play out over time. If the goal of an MDF activity is, say, new leads, that’s all well and good – but are those leads actually turning into revenue? Where is the partner losing traction? Does the MDF activity need to be tweaked to get the results you’re looking for over the long haul?
  • Report on and discuss results in periodic business reviews with your partners. As stated, communication is critical when doling out marketing development funds. It’s unfair to partners when long periods go by without talking about MDF results, and then seemingly out of nowhere, they’re denied reimbursement because of a lack of ROI. In a channel relationship, nothing should be a surprise to your partner.

3. Tailor MDF Activities to Partner Type & Maturity Through Segmentation

As with most issues facing partner programs, MDF isn’t a one-size-fits-all approach. Effective MDF programs create guardrails for the types of activities that are MDF-eligible. AchieveUnite’s Caragol explains: “Providing partners with guidance [and] restrictions on which activities will be most effective for them maximizes the ROI for the vendor and the partner. Activities should be based on the partner’s relationship maturity and business model.”

Caragol advocates that vendors should start allocating MDF activities based on partner readiness or how well-prepared a partner is to sell, promote, deploy or evangelize a supplier’s solutions depending on their partner type. “Partners new to a relationship with a vendor should allocate the majority of funds to partner readiness, while more mature partners should focus on demand generation,” says Caragol. “Tactical partners should also focus on demand, while strategic partners should utilize funding for executive collaboration, solution development and market penetration.”

But how do you determine partner readiness? Partner programs can require partners to take a partner readiness assessment to identify gaps in their current capabilities. With this data in hand, you can recommend next steps, such as training or co-selling, to get partners ready to go to market with their solutions. A readiness assessment must be customized to your solution stack and what each partner type requires to sell or support your solutions.

Creating an effective MDF program for your sales partners means expanding MDF-eligible activities beyond just initial pipeline creation, an emerging trend. “Historically, MDF has been focused on activities that fill the funnel,” says 360insight’s Margolis. “A true, end-to-end program will enable partners to fill the funnel, nurture the funnel, close deals, and nurture existing customer upsell and cross-sell.”

Margolis also advises channel leaders to consider abandoning tier-based programs around revenue since partners may achieve those revenue thresholds simply by being a part of the program long enough. “I see more MDF going to great proposals as opposed to certain tiers around revenue,” says Margolis. “I always suggest giving money to partners and programs that are going to do the work as opposed to accrual-based programs.”

4. Remember MDF Is a Long-Term Investment

ROI on vendor MDF programs may not fit neatly into quarterly or annual budgeting cycles depending on the type of services a supplier offers. Remember that MDF investment is a long-term play and may not materialize results in desired timeframes.

“MDF is a long-term investment that may not show short-term gains,” says Fusion Connect’s Corbett. “This causes internal pushback on both the partner and supplier sides and negatively impacts buy-in.”

Getting buy-in is easiest when you can show how MDF programs have performed in the past. If your program is new or doesn’t have historical metrics, a conservative estimate based on projected industry-standard campaign performance metrics is a safe route to go. As with any new business initiative, it’s a good bet to under-promise and over-deliver.

The long-term view is necessary for MDF activities not focused on direct sales and marketing campaigns. “Investments in partner success (i.e., competency and solution development) provides long-term results that may not be recognized for six to nine months,” says AchieveUnite’s Caragol. “These also may not result in a short-term 20X return, but they will provide exponential returns for years.”

5. MDF Programs Are No Longer Optional for Partner Programs

MDF is now practically a requirement for most partner programs and has become an expectation from partners looking for their next provider.

 “MDF has gone from being a ‘nice to have’ to being a ‘need to have’ when it comes to partner programs,” says Margolis. “Because automation of the MDF program and resources available through platforms are so prevalent, MDF is now table stakes.”

AchieveUnite’s Caragol adds that these tangible investments are part of competing for partner engagement. “Partners are focusing on vendors that invest in them,” says Caragol. “Meaningful MDF programs increase partner mindshare.”

Further, partners have to come to view MDF as a cue that you’re willing to put skin in the game and not just wait for sales to come in. “If you’re a new vendor, MDF will help you to get partners to kick the tires,” says Aryaka’s Steele. “If you don’t offer incentives and wait for them to come to you, it won’t happen. Partners are working with so many vendors and are not going to work with vendors that only take. They want a symbiotic relationship.”

6. Partner Programs Should Invest in Partner Success Beyond MDF

MDF is a proven strategy, but it’s not the only way programs should invest in their partners. As we noted, the proof of value for MDF investments may take months, if not longer, so you should simultaneously explore non-monetary forms of partner investment, such as joint business planning and joint account mapping.

The status quo has changed, and programs must continue to invest more than their competitors to stay ahead. “Gone are the days when you can take partners out to dinner and expect them to send you deals,” says Aryaka’s Steele. “You need to actively invest in their businesses.”

Fusion Connect’s Corbett adds that vendors should combine MDF with SPIFFs, partner training and systemic deal registration, among other incentives. “This helps to ensure a well-rounded strategy for success for both the partner and the supplier,” says Corbett.

GoTo’s Van Dover lists how vendor programs can invest in partners beyond MDF, including:

  • Executive sponsors
  • Access to demo licensing
  • BDR call list program
  • Self-service quoting
  • Pre-sales partner solution consultant support
  • Training and enablement options to fit a partner’s preferences
  • Dedicated partner advocate
  • Partner Success Team support
  • Advisory board membership
  • Custom incentives
  • Dedicated marketing resources

Partner programs and ecosystems should consider adopting these strategies to get the most from their channel investments.