XChange 2015: Solution Providers Need New MDF Tactics In Recurring Revenue World

The shift to recurring revenue is driving massive overhauls in the way that solution providers run their businesses, and the way they approach market development funds (MDF) is no exception.

That was the take-home message from a panel of top solution providers Tuesday at XChange 2015, hosted by CRN parent The Channel Company in Washington, D.C.

"Our industry is changing, so the MDF programs need to evolve as well. That’s a challenge for us navigating those universes to accommodate those changes," Jeremy MacBean, director of business development at Brampton, Ontario-based IT Weapons, said.

[Related: XChange 2015 Solution Provider Panel: Cloud Professional Services Driving Big Sales Growth]

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The challenge comes as traditional MDF programs are distributed based on accrued hardware sales, but money is spent differently with vendors in a services-based and recurring revenue model.

"The days of accrued [MDF] are gone," said Mike Lomonaco, director of marking and communications at Open Systems Technologies, Grand Rapids, Mich.

The shift away from accrual-based funding puts more emphasis on initiative-based programs, where the solution provider pitches a marketing idea then proves return on investment for the vendor's MDF, Larry Hedin, vice president of sales and marketing at Harlan, Iowa-based Heartland Technology Solutions, said.

"We started seeing the transition of accrued MDF with a fair amount of guidance .... Now we're seeing it to where it's swung more to what I would call initiative-based MDF, where the onus is on you ... to really develop programs and use your money wisely," Hedin said.

That shift has opened the door for services-focused companies like Anchor Network Solutions to take advantage of MDF programs for the first time, CEO Vince Tinnirello said.

"I had never done MDF before because, for me, is it's always a pain in neck ... I'm in business to sell our services, but we don’t sell [hardware]. There's often been a mismatch. Moving forward, I'm looking for vendors that want to partner with me," Tinnirello said.

Open Systems' Lomonaco said his company has already been doing initiative-based MDF programs for more than seven years. The benefit, he said, is that it allows the solution provider to be an advocate for their own brand and differentiate themselves with more unique marketing campaigns.

"I would argue that it gives you more opportunity to be creative and really be true to yourselves and your business, and not just chase whatever the [vendor] wants you to chase that day," Lomonaco said.

Instead of traditional lunch-and-learns or other programs, solution providers on the panel recommended webinars, video and written case studies, and social media.

That's a shift in branding vendors are starting to embrace, Karen Newman, senior director of product development at The Channel Company, said. While vendors used to lead with their own brands, she said they are starting to recognize that bolstering the solution provider brand is a tide that lifts all boats.

"You want your [own] brand front and center. We're seeing a tremendous shift where the vendors are starting to get that," Newman said.

With that type of marketing program, Hedin said there is more emphasis and responsibility placed on accurate and through tracking of funding and direct return on investment. In his experience, Hedin said the more reporting he has provided, the more likely his company is to get funding in the future.

"The better you track and report it, the more it will allow them to keep coming back to you," Hedin said.