What Are Vendor Co-Op Funds?
Definition & Examples of Vendor Co-Op Funds
Vendor co-op funds are a type of promotional money that many vendors offer to help promote product sales through their retail partners.
It's in the best interest of vendors and retailers that products sell well, and that's why vendors usually set aside co-op funds. Still, many retailers may not be aware that they're leaving marketing money on the table. Learn more about vendor co-op funds so you can find out if your vendors offer them.
What Are Co-Op Funds?
Most vendors have funds set aside to help promote the sale of their products in retail stores. These co-op funds are one example of a larger marketing strategy called co-op advertising. In general, co-op advertising involves partnerships along the supply chain to help products move all the way to the final consumer.
Although most vendors have a co-op program in their budget, they may not advertise it. For one, vendors may be saving these funds for their larger accounts as a way to incentivize the purchase of merchandise. In other cases, the vendor uses the funds to place advertising in the general market to create brand awareness. While this advertising does help you in that a customer is more likely to buy a product if they have heard of the brand before, it is not a direct influencer to your sales.
How Co-Op Funds Work
Typically, a retailer will accrue co-op funds as they purchase products from their vendors. This amount typically varies from 1% to 3% of your store's merchandise purchases. Many vendors limit or cap the amount of money they are willing to give to a retailer based on the retailer's purchases year to date. So, the more you buy, the more of these funds you get.
There are also variations in how vendors allow you to use the funds. They may still expect you to foot part of the bill for each promotion. For instance, some co-op plans pay 50% of the cost of a specific promotion. So, even if you have $2,000 in funds accrued, but your campaign only costs $1,000, your vendor would only pay $500 of that specific promotional cost.
Some vendors allow more room for negotiation for how you can use co-op funds. Others offer bonus funds to help promote a new product
How to Use Vendor Co-Op Funds
The best use of co-op funds is to promote the sale of the vendor's product in your store. For example, vendors have display ads for billboards or newspapers or bus benches that have places in the ad (sometimes called donut holes) for you to insert your store's information—address, phone number, website, and so on. These ads are typically free to you, meaning that the cost to create the ad is already paid.
But the ultimate use of co-op funds is to get the vendor to pay for placing the ad. Think of it this way; if you buy $20,000 worth of products from a vendor, they most likely have reserved $200 to help you sell them. Ask them to pay for a small ad placement for their products with that money.
Often, you can do a catalog of vendors, giving each one its own page and charging them to be in the book (using co-op funds). This is a successful technique, and the retail brand's image can be elevated with the use of high-quality images and ads from vendors.
Make sure your vendors don't try to blend co-op funds with markdown dollars for slow-moving inventory. Instead of using co-op funds to pay for markdowns, the better plan of action is to get a return authorization (RA) from the vendor and use that credit to buy better-performing inventory. Save your co-op dollars for genuine promotions.
Make Sure to Ask About Co-Op Funds
The truth is that for many smaller retailers, vendors never mention tools such as co-op funds. markdown money, or inventory returns to help you sell their merchandise. Can you blame them? It means the vendor makes less money—at least in the short term.
It's up to you to be proactive in accessing these sales tools to help your store. Ask your vendor about it. They may tell you that you will need to increase your purchases to get access to the funds. But if you are evaluating your inventory correctly, buying more products from a vendor who has a higher turnover may be the right formula. In other words, stop buying from the people who will not help and start buying from the ones who will.
- Vendor co-op funds are a type of promotional money vendors offer to help promote sales of their products through their retail partners.
- Available funds are usually based on a percentage of the total amount a retailer is spending with that specific vendor.
- Retailers can use these funds to offset the cost of placing ads or running other promotions of products from those vendors in their store.