What Are Market Development Funds (MDF)?

What are market development funds (MDF)?

Market development funds (MDF) are a marketing budget a brand gives to its channel partners so they can build demand for its products in their own markets. The brand owns the budget and sets the rules. The partner, a reseller, dealer, distributor, managed service provider or agent, plans and runs the marketing, because it's the business the customer actually buys from.

You'll also hear it called marketing development funds, partner marketing funds or channel marketing funds. Technology and software companies selling through resellers use MDF heavily, and so do manufacturers selling through dealers and distributors. The common thread: a brand that doesn't own the customer relationship pays to help the partner who does.

MDF is one part of the wider practice of marketing through partners, covered in what is through-channel marketing automation?

How do MDF programs work?

Most MDF programs follow the same loop, whatever they call each step:

1. Allocate. The brand sets the budget and decides which partners can draw on it, for which programs and over what period.
2. Propose. The partner describes what it wants to run: the activity, the audience, the products, the dates and the cost.
3. Approve. The brand checks the proposal against the program's rules and gives prior approval, sometimes with changes.
4. Run. The partner carries out the marketing, following the brand's guidelines.
5. Prove and claim. The partner submits a claim with proof that the activity ran and what it cost.
6. Pay. The brand reviews the claim and pays it, as a payment or a credit against the partner's account.

Some programs pay part of the money up front for larger activities, such as an event with a deposit to cover. Most reimburse after the fact.

How is MDF allocated?

At the brand's discretion, which is the main thing that separates MDF from earned funds. In practice, brands tend to use one or a mix of these models:

• By tier. Higher partner tiers get a larger allocation, as a reward for commitment and a reason to move up.
• By business plan. Partners present a marketing plan for the period, and the brand funds the plans it believes in.
• By program. Money is set aside for a specific push, like a product launch, a new market or a competitive switch campaign, and partners apply to take part.
• By region or segment. Budget follows where the brand wants growth, then gets split among partners there.
• Open pool. Any eligible partner can propose, and approvals draw down a shared budget until it runs out.

Whichever model you use, write it down and tell partners. Partners who can't see how money is handed out tend to assume it goes to the same few favorites, and they stop asking.

What can MDF be used for?

Activities that build demand for the brand's products in the partner's market. Because the brand approves each one, MDF tends to fund bigger or more strategic work than everyday advertising:

• Demand generation campaigns: email, paid search and social, and the landing pages behind them.
• Events: customer seminars, lunch-and-learns, open houses, trade show booths and webinars.
• Launch support for a new product, including signage, displays and sales materials.
• Entry into a new market, vertical or territory.
• Co-branded content, such as brochures, case studies or videos with both names on them.
• Sometimes, partner sales and marketing training, or a share of a partner marketer's time, where the program allows it.

Typically excluded: general overhead, routine salaries, marketing that features a competing product and anything that breaks the brand's guidelines. Every program draws its own line, so check the rules before planning around them.

How do partners apply for MDF?

With a proposal, also called a fund request or pre-approval request. A good one is short and answers what the brand will ask anyway:

• What the activity is, and which products it features.
• Who it's aimed at, and where and when it runs.
• What it costs, and how much the partner is asking the brand to fund.
• What the partner expects it to produce, and how both sides will know.

From the brand's side, the fastest programs make most proposals unnecessary. A campaign the brand built and already approved for funds doesn't need a business case each time a partner runs it. Save the full proposal for activities the brand hasn't seen before.

What proof does an MDF claim need?

Evidence that the approved activity ran as planned, and what it really cost. That's proof of performance: typically invoices, a copy of the ad or email, screenshots and platform reports for digital campaigns, and photos, attendee lists or agendas for events. Many MDF programs also ask for results, such as leads or registrations, because the brand funded the activity to produce them.

The mechanics of submitting, reviewing and paying claims are much the same for MDF and co-op. Proof by channel, why claims get rejected and how they're paid are covered in how co-op claims and reimbursement work.

Is MDF the same as co-op advertising?

No, though the terms get used loosely. MDF is granted: the brand decides who gets it and for what. Co-op advertising is earned: partners build up a balance as a share of what they buy, then spend it on approved local advertising. Many brands run both. The side-by-side comparison is in MDF vs. co-op advertising.

Why do brands offer market development funds?

Because partners market more, and more on-brand, when someone else helps pay for it. For the brand, MDF buys marketing in markets it can't reach directly, under the name of a business customers already trust. It also gives the brand a say in what that marketing looks like and which products it features.

For partners, MDF lowers the cost and risk of trying something they couldn't justify alone, like a launch event or a new campaign channel. And for both sides, a well-run program creates a regular conversation about plans and results, which is often worth as much as the money.

Why do market development funds go unused?

Mostly because using them is more work than partners have time for. The usual causes, from what we've seen running these programs:

• The proposal feels like a grant application. A busy owner won't write a business case for a modest campaign.
• Partners don't have ideas or people. Many partners have no marketer on staff, so a budget with no ready-made campaign attached goes nowhere.
• Approval is slow. By the time a request comes back, the moment it was meant for has passed.
• Partners have to front the cash. Reimbursement weeks later is a real cost for a small business.
• Partners don't know what's available, or that it expires at the end of the period.
• Claims bounce. One rejected claim teaches a partner not to try again.

The fixes all move work earlier: campaigns that qualify for funds by design, quick approvals with published turnaround times, balances partners can see where they plan marketing, and funds applied at the point of order where possible, so there's nothing to claim.

How do you measure MDF?

Start with whether the money is used and by whom, then what it produced. Useful measures:

• Utilization: funds used as a share of funds allocated, by program, region and tier.
• Breadth: how many partners use MDF at all, not just how much the busiest ones spend.
• Cycle time: how long proposals take to approve and claims take to pay.
• Results by activity: leads, pipeline and revenue tied to each funded activity, and the cost of each.
• Repeat value: which activity types and partners produce results period after period.

Revenue is the hard part, because deals often close in the partner's systems. Asking partners to report outcomes against each funded activity closes much of the gap. More in how to measure the ROI of partner marketing.

Where does OnBrandify fit?

OnBrandify is the Marketing Hub for brands that sell through partner networks, with MDF in the same place as the campaigns and materials it pays for. Partners see their available funds where they plan marketing, pre-approved campaigns qualify without a proposal, and claims carry their proof with them. See products, orders and funds, or request a demo and we'll talk through how your MDF program works today.