When discussing supplier co-op programs many questions surrounding the logistics, application and accrual of dollars arise. These funds, which are awarded by suppliers to distributors based on purchase volume, are intended to be used to further advertise the products and services of the supplier awarding the funds, thus increasing the distributor’s overall sales of the products within the line. However, more than times not, many distributors find themselves not utilizing these funds, utilizing them incorrectly or completely unaware that they exist. That’s where I come in. In this article I’m going to take you through the ins and outs of a co-op program and help strengthen your overall understanding of these programs and how to properly utilize them.

What is a co-op program?

A co-op program is an often-scalable program or agreement made between a supplier and distributor, typically at the beginning of each year or quarter, in which marketing-related funds are awarded to the distributor. Once awarded, it is the supplier’s expectation that the funds be used for marketing related activities to promote the supplier’s brand and products. The funds awarded through these programs are almost always directly correlated to the volume of product the distributor buys from the supplier.

How do these programs typically work?

Since the funds awarded through these programs are almost always related to purchase volume, the supplier will award you x number of dollars based on y% of volume you buy. The specific formula used to determine precisely how much you are awarded will vary depending on the supplier, however, these programs are normally structured around sales history and in some cases, projected sales.

Once the sum of your co-op program has been determined, the supplier should outline three key things: 1. How will you be given these funds? 2. What are the parameters for which you can utilize them? 3. What percentage is the supplier responsible for per expense? Let’s take a moment to briefly discuss each.

How will you be given these funds?

From personal experience, suppliers will often award co-op dollars in the form of a starting budget, i.e., $50,000 for the year, to be awarded as checks once proof of expense has been provided. When awarded funds in this manner, it is important to understand that you will be reimbursed after you have generated a quote, invoice or proof of expense. Think of this method as submitting an expense report for reimbursement at your company. If you have proof that the expense has or will occur, you will be reimbursed during the time frame and at the percentage agreed upon.

The second, personally less preferred method, tends to present itself in the way of a discount on POs throughout the year. While tempting for some business owners and purchasing agents, this can create a real headache for your marketing department. When discussing with the supplier, if your marketing team is not handling the conversation directly, make sure that this is really what both parties want and that there is a clear understanding of how this will work. If your business is set up with budgets and expenses for each department, this style of reimbursement could make it challenging for your marketing department to have expenses covered. You will need to make sure that your accounting team is allocating funds interdepartmentally and doing so correctly.

What are the parameters for using co-op funds?

Understanding how and when you can utilize co-op funds is crucial to the success of your program. While some suppliers may be comfortable with the funds being utilized for apparel, as an example, others may only want the dollars to be used for counter days or training sessions. Before you begin executing marketing programs for your business that you intend to use co-op dollars for, be sure to verify that the expense falls within the parameters of the program. If at any point it is unclear as to what an acceptable expense for the program is, reach out to the supplier and ask them to verify for you. It is important to keep in mind that these parameters should be part of your initial agreement with the supplier. You should have a clear understanding of your utilization parameters and not agree to a program unless you know what the funds awarded can be used for.

What percentage is the supplier responsible for per expense?

The percentage rule per expense is common practice in co-op programs. More than likely, the supplier will want to share some cost per expense with you depending on the nature of the expense. For example, let’s say you have decided that you would like to have new sweatshirts made up for your upcoming counter day. Your supplier marketing program deems that as an acceptable expense, however unlike your counter day, which is 100% reimbursable, the supplier has deemed this kind of expense a 75/25. In this scenario, the supplier would be responsible for 75% of the total cost and you would need to pick up the remaining 25%. Even though you may have much more than the total cost in your yearly or quarterly budget, you must look at the program on a per expense basis.

How do you submit your utilization plan/individual receipts for reimbursement?

Just as important as understanding how your co-op program works and how much money you have available, properly submitting plans for approval and expenses for reimbursement is key. While these methods may vary depending upon the supplier, many will ask that you provide a high-level plan at the beginning of each year or quarter, however your program is structured, to give the supplier an idea of the direction you wish to take your marketing programs in. It’s important that both you and the supplier come to an agreement on how their marketing funds are to be utilized to help promote their products and your business.

Once you’ve submitted your yearly or quarterly plan, you will need to submit each individual expense for reimbursement. This can be done in several ways, which will once again depend on the supplier, however, many will ask that you provide a quote prior to purchase or an invoice after purchase in the form of an official receipt or PDF, along with proof of what is being made and or created. Many suppliers have also invested in portals that allow you to choose the expense type and then submit invoices and receipts for reimbursement directly through their system.

How should you plan for this year?

Creating a healthy co-op program for the future aids both you and the supplier when making efforts to promote business and grow sales. Keep a close watch on what you saw the most return on during the previous year and think forward for what could be impactful coming up. Discuss ideas with your suppliers and reach out to fellow industry peers to see what they’ve had success with. Keep an open mind and don’t be afraid to get creative.