What is co-op accrual?

Co-op accrual is the mechanism by which a partner earns cooperative marketing funds automatically, usually as a fixed percentage of their eligible purchases or sales over a period. The accrued balance builds up as a liability the vendor owes, and the partner can later claim against it for approved marketing activity. It is formulaic and predictable — the partner knows what they have earned.

How is discretionary MDF different from accrued co-op?

Discretionary MDF is allocated by the vendor's decision against a specific plan, rather than earned by a formula. It is forward-looking, targeted at chosen partners and activities, and sized by strategy rather than by purchase volume. Accrued co-op is earned automatically and scales with sales; discretionary MDF is directed deliberately and scales with intent. The two drive very different partner behaviour.

Should a vendor use co-op accrual or discretionary MDF?

It depends on the job. Accrual-based co-op is better for giving a broad base of partners a fair, predictable marketing budget with light administration. Discretionary MDF is better for steering specific strategic activity and concentrating investment where it matters most. Many mature vendors run both — co-op as the earned baseline and discretionary MDF on top for priorities — provided the rules and reporting stay distinct.

Co-op Accrual Models: Percentage-of-Revenue vs Discretionary MDF

Co-op accrual vs discretionary MDF: how percentage-of-revenue co-op differs from discretionary MDF in budgeting, fairness and the partner behaviour each drives — and when to run both.

Two models for putting money behind partners

Accrual-based co-op and discretionary MDF are the two dominant ways a vendor funds partner marketing, and they behave almost as opposites. Co-op is earned by a formula and scales automatically with a partner's purchases; discretionary MDF is directed by a decision and scales with the vendor's strategy. The choice between them — or the balance, if you run both — shapes your budget predictability, how fair partners perceive the programme to be, and, most importantly, what behaviour you actually reward.

Our primer on MDF vs co-op funds draws the basic distinction; this article goes deeper into the mechanics that matter once you are actually designing a programme — accrual rates and liabilities, budgeting, fairness and the behaviour each model drives. If you are weighing up how these two sit inside your wider incentive design, read it alongside the partner incentive stack explained.

How co-op accrual works

In an accrual model, the partner earns co-op funds automatically. The vendor sets an accrual rate — a percentage of the partner's eligible purchases or sell-through — and each period a corresponding amount is added to that partner's co-op balance. The partner then claims against the balance for approved marketing, submitting proof much as they would for MDF.

The defining features of accrual are that it is formulaic and earned. The partner can calculate roughly what they will have to spend, because it tracks their own buying. For the vendor, every accrued pound is a liability on the books — money owed to partners that will either be claimed or, subject to the programme rules, expire. That accounting reality is a key difference from discretionary MDF and drives a lot of the behaviour around quarter- and year-end, which we cover in quarter-end MDF.

How discretionary MDF works

Discretionary MDF starts from the opposite direction. Rather than a partner earning funds by purchasing, the vendor decides how much to allocate, to which partners, and for what. The size of an allocation reflects the strategic opportunity — a launch, a target vertical, an underpenetrated market — not the partner's historic volume. Funds are agreed against a plan and released through a proposal and approval process.

Because it is directed rather than earned, discretionary MDF is forward-looking and selective. It lets a vendor put disproportionate investment behind a small number of partners or plays, and to change what it funds each cycle as priorities move. The trade-off is that it requires judgement, governance and administration — someone has to decide, and be able to defend the decision.

Budgeting: a liability that scales vs a line you control

The two models create very different budgeting problems. Accrued co-op is, in effect, a variable liability: the more partners buy, the more the vendor owes. That makes the total budget largely automatic and self-scaling — it grows with the business — but also harder to cap, because you have committed to a rate rather than a number. Finance has to forecast the accrual and the claim rate, and unclaimed balances sit on the books until they expire.

Discretionary MDF is a planned line item. You decide the pool, so the total is controllable, and you can concentrate it where the return is highest. The cost is predictability at the partner level: a partner cannot assume what they will receive, which makes it harder for them to plan a marketing calendar around it. In short, accrual trades vendor control for partner predictability; discretionary MDF trades partner predictability for vendor control. Neither is free.

A related budgeting subtlety is breakage — the share of accrued co-op that is never claimed and eventually expires. Because accrual creates a liability the moment a partner buys, finance has to estimate how much of it will actually be drawn down; a programme with high breakage looks cheap on the claim line but is quietly failing, because earned funds that expire unspent generate no demand at all. Discretionary MDF has no equivalent hidden liability — you only commit what you allocate — but it carries the opposite risk of under-allocation, where funds that could have driven pipeline are simply never put to work. Neither model removes the need to forecast; they just move the forecasting problem to different places.

Fairness and governance

Fairness plays very differently in the two models, and it is where programmes most often generate partner resentment. Accrual is transparent almost by definition: the rate is the same for everyone in a tier, the maths is visible, and no partner can claim favouritism because the formula is neutral. That transparency is a genuine strength — it removes argument and builds trust.

Discretionary MDF has to earn its fairness, because someone is choosing. Without clear criteria and governance, discretionary allocation can look — and sometimes be — arbitrary, rewarding the partners with the loudest account manager rather than the best plan. The fix is not to abandon discretion but to make it defensible: published eligibility criteria, a consistent proposal standard (see how to write an MDF proposal that gets approved), and a record of why each allocation was made. Discretion with governance is strategic; discretion without it is politics.

The behaviour each model drives

Ultimately you should choose the model by the behaviour you want, because incentives shape conduct whether or not you intend them to.

Accrued co-op rewards volume that has already happened. It reinforces your existing high-purchasing partners and encourages them to keep buying, but it does little to change what a partner does. It is a loyalty and reinforcement instrument.
Discretionary MDF rewards intent and alignment. Because funds go to agreed plans, it pulls partners toward the activity, markets and products the vendor wants to grow — and gives newer or smaller partners with a strong plan a way in that pure accrual never would. It is a steering instrument.

Put crudely: accrual pays partners for what they have done; discretionary MDF pays them for what they are going to do. If your channel is mature and you mainly want to keep good partners investing, accrual's predictability is an asset. If you are trying to change the shape of the business — new products, new markets, new partners — discretionary MDF is the lever, because a formula tied to last year's purchases cannot fund next year's strategy.

Running both together

Plenty of mature vendors run both, and for good reason: they solve different problems. Accrued co-op provides a fair, predictable baseline across the whole base with light administration; discretionary MDF sits on top to concentrate investment on strategic priorities. The base feels equitable because it is formulaic, and the strategic layer stays flexible because it is directed.

The risk in running both is complexity — two sets of rules, two claim processes, and the real possibility of funding the same activity twice if the lines blur. The discipline that keeps it clean is separate identifiers and separate reporting for each pool, so you can see what the earned baseline delivered versus what the strategic overlay bought. That separation is exactly what the MDF Intelligence Platform is designed to maintain, tracking accrued balances and discretionary allocations distinctly and attributing pipeline to each. Deciding the right split for your channel — and building the governance that keeps the discretionary layer defensible — is central to our MDF programme optimisation and channel marketing work.