Market development funds are one of the more reliable ways for an ISV to spend nothing and feel generous. You announce a budget, partners nod appreciatively, and at the end of the year most of it is unspent and the program gets called underused.

I have run MDF that worked and MDF that did not, and the difference was never the size of the pool.

The two reasons it goes unclaimed

Claiming is harder than the money is worth. A partner has to propose an activity, get approval, run it, front the cost, collect proof of performance, submit a claim, and wait 60 days for reimbursement of $2,500. For a 20 person VAR, that is several hours of somebody's admin time and a cash flow gap. Plenty of them do the math and skip it.

They have nobody to do the marketing. This is the bigger one and it is the one ISVs consistently miss. A mid-market ERP VAR with 25 people has a sales team, a services team, and no marketing function. Maybe an office manager who updates the website. Handing them money to run a campaign assumes a capability that does not exist in the building.

You can fix the first problem with process. The second one is not a process problem, and no amount of simplifying the claim form will address it.

Fund the doing, not the intention

The version of co-marketing that works with partners who have no marketing team is one where you do the work and they lend their name and their list.

Concretely, instead of offering a partner $3,000 to run a webinar, offer to run the webinar. You build the deck, you provide the speaker, you set up the registration page under their branding. They send the invitation to their customer list and show up on the call as the trusted advisor.

The cost to you is similar. The completion rate is not close. I have seen the same partner decline a funded campaign twice and then happily co-host a session that was fully built, because the barrier was never money.

Things that work in this shape:

  • A customer webinar built by you, hosted under their brand
  • A short email sequence written for them, sent from their domain to a segment of their base
  • A one page piece with their logo that their reps can actually hand a customer
  • Paying for their booth staff's travel to a user conference they were already attending

Things that mostly do not: cash toward advertising, sponsorship of things with no attribution, trade show floor space at a general industry event, and anything that requires the partner to produce content.

If you are going to run a claim-based program anyway

Some partners do have marketing people, and for those the traditional model is fine. A few rules make it work better.

Approve fast. Same week, ideally same day. A partner planning an event in six weeks cannot wait three weeks for approval, and once they have missed a window because of your process, they stop asking.

Pay fast, and consider paying ahead. Thirty days is workable, sixty is a barrier for a small firm, and prepaying half is a meaningful gesture that costs you almost nothing in real terms.

Make proof of performance proportionate. A screenshot and an invoice for a $2,000 activity is enough. Demanding attendee lists and lead attribution for small sums is how you spend more on administering the program than it disburses.

Publish the rules once and stop changing them. A partner who was reimbursed for something last year and denied for it this year will not submit a third time.

Tie funds to something you can see

The failure mode at the other end is MDF that gets spent with no idea whether it did anything. A partner takes $5,000, runs a golf outing, everybody enjoys it, and no opportunity is traceable to it.

I do not think every dollar needs attribution. Relationship spend is real and ERP channels run on relationships. But I want a mix, and I want the majority of the pool going toward activities where something countable happens: registrations, meetings booked, opportunities registered within 90 days.

The simplest structure I have used: two thirds of the pool is available for defined activities with a known output, and a third is discretionary for partner relationship spend, allocated to partners who are actually producing. That keeps the program honest without pretending a customer dinner is a demand generation channel.

Allocate to activity, not to tier

Most programs allocate MDF by tier, so a gold partner gets a bigger pool than a silver one whether or not they intend to use it. The result is a large allocation sitting unused on your biggest partner while a hungry smaller one has nothing.

I prefer a pool that is claimed rather than assigned. Anyone active can propose, first come first served, with a per-partner cap so one firm cannot take it all. It makes the money go where the energy is, and the energy is not always where the tier chart says it should be.

If you do allocate by tier, at least reallocate mid-year. Money that nobody has touched by July should go to someone who will use it by December.

What to do if your MDF went unspent last year

Do not increase the budget. That is the standard response and it treats a demand problem as a supply problem.

Call five partners who did not claim anything and ask why in plain terms. You will hear some version of two answers: I did not know it existed, or I do not have anyone to run it. The first is a communication fix and takes a week. The second tells you to change the model from funding to doing.

Then pick your two or three most active partners and run one fully built campaign with each of them, on your effort, this quarter. Compare the result to a year of unclaimed budget. That comparison tends to settle the internal debate faster than any argument about the program design.