MDF Best Practices - An Executive Review

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A review of best practice in the management of market development funds (MDF) programs.

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MDF Best Practices - An Executive Review

  1. 1. Bill Kelly U.S. Managing Director & Global Sales bill.kelly@birchworldwide.com August 13, 2013 MDF Program Best Practices An Executive Summary
  2. 2. 13‐Aug‐1313‐Aug‐13 Agenda Page 2 |    © 2013 Birch Worldwide  All Rights Reserved Program Evolution Common Program Elements Classification of Expenses (SOX) JMF Investment Benchmarks Effective Governance for Program Compliance 1 2 3 4 5
  3. 3. 13‐Aug‐13 Program  Evolution Page 3 |    © 2013 Birch Worldwide  All Rights Reserved
  4. 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 |   
  5. 5. 13‐Aug‐13 Common Program  Elements Page 5 |    © 2013 Birch Worldwide  All Rights Reserved
  6. 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. 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
  8. 8. 13‐Aug‐13 Classification of  Expenses Page 8 |    © 2013 Birch Worldwide  All Rights Reserved
  9. 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. 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
  11. 11. 13‐Aug‐13 JMF Investment   Benchmarks Page 11 |    © 2013 Birch Worldwide  All Rights Reserved
  12. 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. 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
  14. 14. 13‐Aug‐13 Effective Governance for Program Compliance Page 14 |    © 2013 Birch Worldwide  All Rights Reserved
  15. 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. 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. 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
  18. 18. Asia Pacific Office: 78C Duxton Road Singapore  089537 Singapore Phone: +65 62 23 76 04 North America Office: 765 Baywood Drive, Suite 237 Petaluma, CA 94954 United States Phone: +1 707 790 8400 European Office: Unit 16, Ilex, Mulberry Business Park, Fishponds Road, Wokingham, Berkshire,  United Kingdom, RG41 2GY Phone: +44 1189 121200 13‐Aug‐13 Questions?Questions? © 2013 Birch Worldwide  All Rights ReservedPage 18 |   

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