Vendor Funding: Accrued or Discretionary, what is best for the partners?

During September and October I created a simple Survey Monkey entitled Vendor Funding: Accrued or Discretionary, what is best for the partners? My objective was to receive 50 genuine responses. The primary reason for this survey is that I worked with many funding processes both at Avaya and Nortel and I continually see large vendors from all sectors changing the way that they fund their channel programs. One year it’s accrued and then the next year they change to discretionary, but does anyone ever ask the partners what they want from the program and how this affects their businesses?

I doubt it, so I sent the 7 question survey to as many people in my network of vendors, partners consultants etc. that would (a) be interested in the topic, so as to take part and (b) be even more interested in the results.

I started with a simple question, (1) Where are you employed? This helps set the tone for the survey and how to then interpret the answers to the more in depth questions. The responses were as follows Vendor 38.3%, Reseller 31.9%, Distributor 12.8% or Supplier 17%. Therefore 64% of the responders were from Vendors or Resellers which is the perfect base for answering the remaining questions and providing the insight I required to summarise and interpret the results.

Throughout my vendor careers we were always asked to ensure that the partners were aware of the rules and regulations that governed vendor funding models, my initial view was that not many partners took any notice, but I was wrong as when I asked, (2) Have you ever heard of the Federal Accounting Standards Board (FASB) Rules or Sarbanes-Oxley (SOX) Compliance? Surprisingly 72.5% of the responders answered ‘Yes’ and 27.5% answered ‘No’ that is a very positive sign for vendors who are tightly governed by these various policies. This result is very positive for vendors as governance of funding programs is very tight and they need to ensure that everything is managed to the letter of the law.

The next question had to be simple and direct, (3) What is the preferred funding model for partners? I wanted a definitive answer to this question so I only listed 3 possible answers, Accrued (earned as % of revenue), Discretionary (allocated on case by case basis) or other. The results were as follows Accrued 43%, Discretionary 41% and other 16%. There were some additional comments that were added in the other section which I think need a mention and that add to the debate…

1.     “Hybrid, mixing both to support short & long term goals”

2.     “Mixed”

3.     “A mixture of both”.

4.     “Split 50/50 between the 2”

5.     “Mix of earned and specific projects”

6.     “To run both in parallel is particularly useful. The accrued approach provides an element of predictability but there are occasions where the vendor can collaborate with you on activities with mutual benefit above and beyond the accrued %, as long as you are a 'clean' user of accruals!”

7.     “most reseller too small for accrued funds to be meaningful”

8.     “they want to see a mixture of both”

9.     “Discretionary allocated on long term agreed plan

The audience is almost split on which system is preferable, plus a decent number advocate a mixed approach which might well be worth exploring for future vendor program changes.

In the next question, (4) what are the barriers to spending? I created a multiple choice question because I know people have more than one reason for not being able to spend their allocated Market Development Fund (MDF) or Business Development Fund (BDF). I was interested to see where the answers would rank, and here they are in order of response:

a.     Claiming Process (time consuming)

b.     Types of activities allowed (restrictive)

c.     Not enough funds to make it worthwhile

d.     Guidelines change too often

e.     Terms & Conditions (unclear)

f.      Percentage of assistance

Clearly vendors need to address all of the items listed, but I would say the top two were easily the area of most focus from the responders. If vendors make it easier for partners to claim on activities that they would like to execute the utilisation rate would increase and everyone would be happy, but this seems to be where there is a gap, and everything slows down and momentum is lost from creating and executing joint marketing programs funded by the vendor.

Next I wanted to find out if people thought, (5) if marketing funding levels should be linked to a partners status within the Vendor’s Certification Program? And we would accept a simple, Yes 75%, No 10% or No Preference 15%. The consensus here makes perfect sense, if a vendor has a certification program, a benefit of that program and achieving a higher level of certification should be rewarded with more Market Development Fund (MDF) or Business Development Fund (BDF) than lower certified partners. But that does not always happen which I find a little bit odd.

The next question was (6) Should Partners match Vendor’s funding with contribution of their own to an activity? And the answers were a little surprising nearly 32% of responders were from resellers. The answers were Yes 36%, No 7% and Depends on the activity 57%. This is a really interesting result as it shows vendors that resellers are open to new ideas and approaches, so if you are changing your partner program don’t just serve up the same old program rewards and guidelines, think outside the box and stimulate growth with your partners who are asking for a new approach.

And finally, let’s talk about how to get access to these Market Development Fund (MDF) or Business Development Fund (BDF) statements. The question was (7) Are the online Marketing funding portals you have experience of easy to use?And the answers came back were Yes 20%, No 48% and Varies 32%. I think we can safely say that as nearly 50% of the responders were negative in response to this question then the vendors seriously need to take a look at the platforms that are used to access the fund balance and create the transactions. We must bear in mind that the vendors may be constrained by using a global system, but if the system is not used by the partners, then clearly changes are required.

In conclusion, this is just a snapshot with 51 individual opinions on the 7 simple topics that  admittedly only covers a fraction of this topic, but I think it gives us a genuinely good indication of the thoughts within our industry Re: Vendor Funding: Accrued or Discretionary, what is best for the partners? As a next step I would encourage vendors that are thinking of changing the way they reward their partners to investigate the pros and cons thoroughly before making any changes, and most importantly consult your audience. If a vendor changes from discretionary to accrued it takes smaller partners at least 6 months to earn enough funds to afford to roll out a single activity, if the program then changes back they lose out again as the more highly certified partners will most likely always receive the discretionary allocations. Vendors need to think carefully around this topic, as they can help to make or break quarters and most importantly channel relationships and coverage.