Despite criticism and doubts, contra revenue as a funding source can be highly effective under the right conditions.
Contra revenue, or the deduction of a percentage of income to fund go-to-market activities and programs, is a long-standing and popular mechanism in the channel. Most market development fund (MDF) programs operate under the contra model because it reduces expense risk exposure while providing a valuable source of funding for partner activities that result directly and indirectly in sales.
However, contra revenue or funding isn’t a blank check. Vendor management often questions the necessity of taking money from the top line. Finance teams frequently raise concerns about the impact that contra has on profitability. Compliance officers may argue that MDF is being improperly used or, in some cases, abused by partners. Meanwhile, channel chiefs and program managers face challenges in proving the efficacy of contra-based programs.
Additionally, many people are confused about the distinction between contra revenue and operating expenses (OpEx). They often struggle to determine when one funding source is more appropriate, allowable, or effective than the other. Interpreting accounting rules regarding these funding sources can also be daunting for non-experts.
Despite the criticism and doubts, contra revenue as a funding source can be highly effective under the right conditions. Channelnomics has prepared this guide to help channel professionals and practitioners better understand what contra revenue is, how it should be applied, and best practices for maximizing its value.
