co-op and mdf expiration

Should CO-OP and MDF Funds Expire?

  • December 07, 2016

Should Co-Op and MDF funds expire? Why is such a simple question so hard to answer?

Expiring Co-Op and MDF  can benefit partners

From a partner perspective they’ll see Co-Op and MDF as something they earned or as a program entitlement. From either perspective it will be difficult to convince them expiring funds is in their interest. There are however several reasons why expiring funds might very well benefit partners.

First, ask a partner actively participating in an MDF or Co-Op program if they’d like more funds? Or, ask the experienced brand channel manager if more funds would make a difference in revenue achievement? Both typically would answer with an emphatic YES! Strangely more funds are available they are just out of the reach of these partners and marketers.

Not all partners use their Co-Op and MDF funds. Major brands report that almost half of their funds go unutilized. Also, typically less than half the partners participate in Co-Op and MDF programs. Funds allocated to partners not actively engaged sit on the balance sheet and don’t benefit anyone. There is a case to be made these funds could be reallocated to active partners if they expired. If the funds aren’t expired they remain on the balance sheet as a corporate obligation to partners who never intend on using them.

Another reason why partners might benefit from expiring Co-Op and MDF is the call to action an expiration creates. Let’s face it, we live in a world where people put off doing things until the last minute. A “last call” message might light a fire under partners who would not normally use the funds. It also creates a sense of urgency with those channel partners actively engaged.

Lastly, if you’re a partner it may be easier to understand the transactions and resulting balances within a set funding period rather than trying to understand all the data in one ongoing fund (imagine 3 years into an active program). Expiring funds can take some of the program confusion out for the partner.

Why would an inexperience channel manager answer differently from an experienced one?

The inexperienced channel manager hasn’t dealt with the reporting nightmare not expiring funds creates. The inexperienced channel manager might also fear the funds going away more permanently than the experienced channel manager (see CEO and CFO position on funds below).

Expiring funds makes program reporting substantially easier to do and makes the reports easier to consume. For example, closing out a fund on a program level allows all data to be tied back to the fund level for that period. Tracking program ROI and effectiveness of programs and funds becomes easier when there is less legacy baggage.

Expiring funds also enables the brand to align fund utilization to Co-Op and MDF budgets. For example, if a budget period is quarterly or annually, the program manager can align fund allocation and plan approvals to that budget period. Any unused/uncommitted funds are then expired in conjunction with the end of the budget period.

Funds expiration also enables more straightforward data archiving. If all data (allocations, plans, claims, expirations) are tied to a fund that has an end date and is not perpetual, data can easily be archived without impacting active programs. That may not be as much of a concern for a national account with one or two funds, but when a program creates 25, 50 or hundreds of funds annually this can become problematic. And that’s assuming no major process changes mid-year prompting a relaunch  of funds (which happens).

Fear of  the CEO or CFO motivation might be unwarranted

Inexperienced channel managers and partners both fear the brand’s CEO and CFO will want to take money away. Our experience has been just the opposite. Most of the programs we’re involved with have strong data showing a direct correlation between Co-Op and MDF usage and revenue growth. CEOs and CFOs want to spend more money in these companies not less. The focus is clearly on how to get more partners engaged and all funds spent.

As funds accrue and begin building a bigger and bigger liability on the balance sheet the program draws the attention of the CEO and CFO. It is not good business to tie up money in this manner, and it leads to external questions from Board members and investors that are best avoided. Expiring funds reduces the brand’s financial liability for accruals (your finance/accounting team will be happy).

The only person who loses when you expire MDF and COOP funds is the partner that had funds available and didn’t use them. This is much like a tree falling in the forest with no one around to hear it. Did it really make a sound? Do those partners really lose? This is something to consider when planning your Co-Op and MDF program for 2017.

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