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MDF Best Practices - An Executive Review
- 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 |
- 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. 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
- 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. 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
- 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
- 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. 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. 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