How the Cloud changed Co-Op and MDF Programs

How the Cloud changed Co-Op and MDF Programs

Over the last three to five years more technology businesses have moved from on-premises offerings to cloud/subscription models. This change has caused the industry to rethink many of its pricing and channel management practices. One area that has gotten significant focus is Co-Op and MDF programs.

What’s the difference between Co-Op and MDF Programs?

Before going further, let’s quickly cover the difference between Co-Op and MDF programs. Co-Op programs are accrual based, usually a percentage of revenue for some prior period. MDF programs are discretionary and usually involve a channel partner submitting a proposal for market development funds usage.

How does moving to a cloud model disrupt Co-Op and MDF programs?

As the technology industry moved away from selling licenses for five to six figures, to a monthly subscription typically ranging $10 to $25 per month the traditional Co-Op accrual method became problematic. Does it make sense to accrue 1% to 5% of a $20 subscription for future marketing?

Most vendors found accruing market development funds at this level too challenging to manage, and small fund allocations also created significant usage challenges for channel partners.  The end results were program management issues followed by significant amounts of funds unused at the end of each plan period.

To address these challenges vendors began to institute Co-Op program tiers. The idea was to only award funds when channel partners achieved a certain level of recurring revenue. This made the programs easier to administer, but uncovered two new issues.

Hidden Co-Op Program Challenges

The first challenge was revenue achievement did not always directly correlate to marketing competence. Many companies found their largest partners were their weakest marketers. This often occurred when channel partners were converting customers to the cloud model. Established partners weren’t working to find new customers and their marketing had become complacent.

The second issue revealed by the cloud model was the channel partners needing the most marketing support were the ones at lower volume tiers or emerging partners. These were the ones actively adding new customers and accruing funds based on past revenue achievement didn’t address their needs.

The Move to Hybrid Channel Funding Models

Many companies who’ve traveled this path shifted from pure Co-Op accrual models to some or all funds being allocated in discretionary MDF models.  This lead to some significant program changes including:

  • Pushing fund disbursement decision making down to first line CAMs and PAMs.
  • Shortening fund life from annual to monthly or quarterly.
  • New multi-level approval hierarchies

Most companies have also continued to maintain program tiers to ensure funds aren’t mis-allocated by the field.  Program agility has become the name of the game for cloud market development funds.

New Model Challenges

As the changes above have occurred, legacy Co-Op and MDF systems have struggled to adapt and many have become obsolete. Program agility also has heightened sensitivity around compliance.

Many legacy systems simply weren’t developed to deal with short cycle times or discretionary disbursements of funds at the field’s discretion. It isn’t unusual to find legacy systems that take months to setup and don’t allow for complex organizational hierarchies or first line field disbursements.

Where’s it all going?

As cloud programs mature some companies are moving back to pure Co-Op fund disbursement models. These companies are typically those who haven’t let go of legacy systems and have simply grown tired of fighting them. Cloud program maturity is also beginning to remove some of the need around supporting emerging partners, as these partners mature in the channel.

Many companies going through a cloud transition have sought out, or are seeking out, more agile Co-Op and MDF platforms. These platforms move change control from the vendor to the brand’s channel team. These new platforms also accommodate discretionary disbursements and complex hierarchies much easier. Most importantly these platforms are built on more mature process management foundations that enable greater compliance control.

To learn more about how Co-Op and MDF funds management platforms are addressing the needs of cloud solution providers consider scheduling a private session with 360insights’ program management team.