What is the magic number that you must get to optimize ROI on MDF?
One of the things I strive for when writing this blog is that the topics reflect real-life experiences and issues brought to my attention from fellow channel marketers. To that end, I had one curious question asked of me twice recently that seems like it would be fitting topic: “What is the magic number we need to attain to optimize the ROI of my MDF program?” I could tell that the response the questioners were hoping for was something along the lines of, “Your MDF program should deliver a return of 6:1.” Now, I know what you’re thinking: “Deliver what at a return of 6:1? Why 6:1?”
First, there are many possible values that can be inserted to more accurately define “what.” And all those values should closely align with your program goals and go-to-market strategies. Sales? Dollars? Units? Net new customers? Training new partners? Opportunities created? What else? Lots else! I equate MDF (or co-op, for that matter) with an allowance you’d give your college kid. In this analogy, your college student receives an allowance each month which you hope they spend on things to forward their education (books, room and board, etc.) and not on other things (beer). Your MDF program guidelines then become the equivalent of how you want your partners to spend the money, and how they prove that they spent it on those things. That should be the “What.” Hopefully all the “What” they spend it on, leads to an end game of a good education (or “sales,” when we bring the analogy back to the reality of this MDF).
Earlier, I referenced a 6:1 return, which really means nothing in and of itself because it is relative—it only means something compared to something else. There isn’t one standard ROI “target” to measure MDF success across all marketers. For example, if you’re a manufacturer of a #3 brand within a commodity category (volume) that requires one set of GTM initiatives, you shouldn’t believe your “number” should be comparable to that of another marketer who is producing a leading edge early adapter solution (value) requiring a completely different set of GTM initiatives. That comparison is both unrealistic and unfair. So there is no “magic number” because programs are too different with too many different variables.
There is a bright side, however, because you can get to your magic number…
There are three ways to calculate the ROI of your MDF program:
1) Impact on overall sales
To find this number, you will have to a) assess what you are measuring: total dollars? Specific product line? Units? Net new customers? Then, b) define the sales period (such as, year-to-date, last year, last quarter, whatever, but that time period must consider the effective sales cycle of your product at a minimum). Next, c) create a test group of channel partners who sell those products and use MDF to support those products at a reasonably high threshold during that period (remember, this is relative) and d) create a control group of partners that is roughly the same size and is equivalent in every way except they either don’t use MDF or use MDF at low levels. Finally, e) the relative difference in sales between them represents the LIFT devoted to your MDF program, and the cost you invested in the test group represents your investment to get there. Divide the one into the other and Voila! you have your number. Is that number impressive? I don’t know. But at least now you have something to monitor over time to see if you can improve it—because it is a relative number, after all. This exercise doesn’t require an analysis of many resellers to perform this. Your sample size is dependent upon your overall partner universe, but sampling fewer than 100 resellers will likely be enough.
Sound too difficult? Then there are other ways to evaluate ROI. In fact, you should do these other two anyway, as they are preferred over the previous way as “leading indicators” of MDF effectiveness.
2) Define how you want your MDF to be spent, and track your level of spending against those initiatives
Now, by “how”, I am not referring to activities (like newspaper advertising or email campaigns), I am referring to “to what end?” as your MDF spending should closely align with your own GTM initiatives. For instance, specific products? Vertical audiences? Solutions? Would you rather your partners use the turnkey marketing programs you provide to support those efforts? Do you hope they use their MDF for training? All these GTM initiatives provide a basis to track spending (and successes) over time. This may take the form of a “spending by…” report that reflects absolute investment, as well as a percentage of the total investment. In addition to overall evaluation, results may be compared between partners’ regions to make those results more meaningful.
3) Activity ROI
The closest MDF inherently gets to a single magic number for ROI is at the activity level—cost per lead, cost per attendee, cost per impression, etc. Most of the activities normally included in an MDF or co-op program can be assigned a metric component (responder, attendee, etc.), allowing you to calculate a “cost per.” Again, the “cost per” number means nothing as a standalone number, but if you can compare it with other activities, or those attained by the more “successful” partners, now you’re on to something. For that reason, we recommend that you standardize these metrics between activities as much as possible (such as applying cost per lead commonly across email, direct mail, social media, etc.) to understand a relative comparison between activities. This comparison will clearly help any one partner in planning efforts. What’s more, comparing these numbers BETWEEN partners provides a foundation for best practices.
In summary, we recommend that you try to practice all three approaches—then you’ll have your magic number.