Marketing Development Funds (MDFs): How They Work, Benefits, and Examples

• Brands use marketing development funds (MDFs) to support channel partners’ marketing efforts.
• MDF programs provide channel partners with funds upfront, which makes them more like investment programs rather than bonus or incentive programs.
• Brands use MDF programs to increase sales through lead generation, brand awareness, and expanded market reach.
• MDFs provide channel partners with the resources they need to improve or grow marketing efforts.

Businesses are always on the lookout for new ways to boost sales. Is there a way to do that without overloading their own sales teams?

Marketing development funds (MDFs) may be just the solution. They encourage collaboration between the brand and its channel partners so that both parties reach their end sales goals.

Marketing development funds (MDFs) are budgets set aside by brands to support their channel partners' marketing efforts.

Channel partners are businesses that collaborate with a brand to market and sell its products through their own networks. They are often seen as an extension of the brand’s marketing team, but they operate independently from the brand itself. When the brand assigns MDF funds to its channel partners, they’re helping their partners promote the brand’s products, generate leads, and expand market reach. This means that MDF funds are often used to run ads, create promotions, and get the brand known by more potential customers.

Aside from MDFs, a common way brands reward channel partners is through cooperative (co-op) programs.

Co-op funds are different than MDFs. In co-op programs, the brand sets aside funds for partners. Those partners earn or accrue those funds as they reach certain revenue goals. MDF funds aren’t tied to performance; instead, they’re given to brands upfront so that they can put more resources into their marketing efforts.

While both MDF and co-op programs supply funds to channel partners for future marketing activities, they differ in a few key ways.

• MDFs are awarded based on the brand’s discretion while co-op funds are awarded based on performance: Channel partners apply to receive MDF support, which the brand can approve or deny. They don’t have to achieve any certain goal to receive MDF funds. Co-op funds are different; they’re awarded after the fact and typically tied to performance. A partner accrues co-op funds based on sales or other performance metrics, which they use to bolster future marketing efforts.
• MDF programs are short-term while co-op programs are long-term: MDFs are typically used for short-term projects, to achieve a finite goal. For example, a brand business might approve one partner to use MDF funds to showcase their products at a trade show, while another partner may be authorized to use funds for training their sales staff on the product's benefits. Co-op funds are different. They are awarded based on sales performance, so they are often used for longer-term campaigns.
• MDFs can support a broader array of channel partners: Because co-op funds tend to be based only on sales numbers, they're generally used only with high-volume sellers like distributors or retailers. MDFs can be used for channel partners who don't focus on making direct sales, like product consultants or businesses providing IT support for the brand’s products.

MDF programs start with the business (typically a brand) setting aside a portion of their earnings to fund the program, which is earmarked to support the marketing campaigns of their channel partners. These funds are considered an extension of the company's marketing budget. The business also tasks its marketing initiatives to its channel partners instead of its own employees.

Once the fund is established, the business must decide how to allocate the money. This requires them to identify the types of marketing campaigns worth supporting and the channel partners best positioned for success. Let's look at an example of how the same software vendor could use MDF in two different ways to meet the same goal of boosting sales.

Let's say that a software vendor based in California wants to grow its user base, but the brand isn't well-known outside of the state. The software vendor can allocate MDF to distributors across the country to run digital ads to improve name recognition in those regions.

Once brand awareness improves, the software vendor can reallocate their MDF for other purposes. For example, funds could be transferred to retailers who advertise the software in their store catalogs.

Understanding how MDF structures work can make it easier to get support for campaigns that generate leads, boost brand visibility, and drive revenue. Here are some of the most common models:

Partners can submit a use case for a specific marketing campaign or initiative. The brand reviews each application individually and approves those that align with their criteria.

Some MDF funds are automatically released to partners based on their tier. This tier is typically tied to performance, often sales volume. Partners in higher tiers will get a larger portion of the MDF budget.

MDFs don't have rules, so some businesses opt for a hybrid approach. This involves allocating a baseline amount to their partners to help start the initiative. If those initiatives are met (or to the extent they are met), they can be rewarded or reimbursed.

The most obvious benefits of MDFs are increased brand recognition and expanded market reach, leading to increased sales. However, MDFs offer many other advantages:

• MDFs compound efforts: Have you ever heard the quote, "Teamwork amplifies effort and multiplies success"? The value of money that brands place into an MDF is amplified by the efforts of their channel partners, resulting in outcomes far greater than either could achieve alone.
• MDFs build strong relationships: Having a shared goal helps brands and their channel partners build lasting relationships. This encourages partners to prioritize the brand’s products over others they might sell or market.
• MDFs help leverage knowledge: Brands can depend on their channel partners in areas where they lack expertise, such as understanding what the end consumer wants or the best ways to reach their target audience.
• MDFs diversify the risk: The co-investment structure of MDFs makes fund use a shared responsibility, meaning both teams share the risk of the selected marketing efforts.
• MDFs create opportunity for growth: MDFs provide channel partners with the chance to invest in improvements they might not afford on their own, such as purchasing new sales technology or enhancing employee training. Software like Agentforce Sales can be customized to work with partner-led sales and automate various stages of the sales cycle.

To see how versatile MDFs can be, let's go over two possible use cases:

A cybersecurity software vendor is looking to generate leads in the UK, but it lacks strong name recognition there. It sends MDF funds to one of its UK resellers to host a co-branded webinar. The reseller, acting as the channel partner, hosts a webinar titled "Top 10 Cybersecurity Threats to Midsize Businesses." The presentation slides feature both the vendor's logo and the reseller's logo, and the webinar attendees are potential buyers of the software. This webinar helps increase the vendor's brand awareness and attract new leads, allowing the vendor to send targeted offers.

An electronics vendor wants to increase smartwatch sales for the holidays. In the weeks leading up to the holiday season, the vendor provides MDF funds to a national retail partner to run an in-store promotional campaign. In most of their stores, this involves placing large signage near the smartwatches. In larger stores, it also includes demo stations where customers can try out the watches. The vendor provides the display materials and the demo units, while the retailer provides and trains staff members to run the demos.

A common challenge with MDFs is determining the right budget for each partner. The budget depends on the cost of the marketing task at hand, but it can vary based on the channel partner's maturity and market presence. Those with a larger reach might receive a bigger portion of the fund's budget so they can make a greater impact.

MDFs are also quite hands-on. The business must review proposals from channel partners, track progress toward agreed-upon initiatives, and calculate return on investment (ROI). This isn't always simple, and it involves additional administrative costs for the business.

Brands and their channel partners may also lack the technology to manage MDFs effectively. Some solutions improve visibility into these types of funding programs and equip partners with better tools. But they aren't available in every ERP system. Brands looking to implement MDFs may need to explore new options.

Forming the MDFs and disbursing the funds is the easy part, but calculating ROI can be tricky.

First, you need to determine the right type of initiative. If the campaign or marketing effort is too complex, the brand is essentially setting their channel partner up for failure. The milestones should be clearly outlined so both the brand and the channel partners know whether they're on the right track.

Second, the brand and the channel partner should document all costs. While tracking MDF spend is straightforward, tracking how those funds are used can be more challenging. Brands should ask partners for a detailed breakdown of how funds are used.

Finally, there should be an effective way to report progress. This is where technology solutions often come into play. Partner relationship management (PRM) or customer relationship management (CRM) systems can help track leads through the pipeline. Good PRM and CRM software should be able to link those leads to a specific channel partner's MDF campaign.

If all these are in place, calculating ROI should be much simpler.

MDFs will be most successful if the brand follows a set of best practices. This will help ensure MDF funds aren't wasted on inefficiencies or poor-quality campaigns. Here are some best practices to consider:

• Make sure progress is trackable: It's essential to select initiatives that are simple and easy to track. When initiatives become too complicated or if channel partners can't tell if they're meeting milestones, the program loses its effectiveness.
• Identify partner selection criteria: The brand should have criteria for selecting the right channel partner. They might consider the partner's past sales performance, current position within the marketplace, and ease of communication.
• Determine campaign selection criteria: Similarly, the brand should set criteria for the types of campaigns they wish to support. To do this, they need to understand which types of campaigns are effective.
• Clarify application criteria: The brand should set expectations for the application process itself. For example, you might create a portal to gather applications, which later can be used to monitor progress toward shared goals.
• Take all opportunities to automate: If any part of the MDF process can be automated — such as sorting applications, periodic check-ins with partners, presumed ROI calculation, etc. — then that campaign is likely to be more successful.
• Ensure you have strategic alignment: The MDF initiative should benefit both parties equally. This alignment should be set early. Before approving partner applications, the business should determine if shared goals are present.

MDFs may be just another line item in the marketing budget, but they offer unique opportunities for businesses and their channel partners. When used effectively, the shared investment can generate leads, create demand for a product or service, and speed up pipeline growth. In sales, we know that reaching the right prospects and selling a well-known, vetted product will lead to more wins. MDFs can be a key to achieving this.