What are Vendor Co-op Funds?

Vendor Co-op Funds. Getty Images

 A question I ask retailers that often ends in a blank stare is "how much co-op money have you gotten from your vendors this year?" Why the bank stare? Because they never heard of it. 

Every vendor has funds set aside to help promote the sale of its products in retail stores. This amount typically varies from 1 - 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 YTD.

So, the more you buy, the more of these funds you get access too. Commonly referred to as co-op funds, these monies are always a part of the vendor's plan - but they do not always tell you about 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. 

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 newspaper or bus benches that have places in the ad (sometimes called donut holes) for you to insert your store's information such as address, phone number, website, etc.

These ads are typically free to you - meaning that the cost to create the ad is already paid for. Whatever venue you run the advertisement in (ROP, outdoor, etc) that provider will gladly insert your store information in the ad graphic you got from the vendor for free. After all, they are getting your money to pay for the placement.

 

But the ultimate use of co-op funds is to get the vendor to pay for the placement of the ad. Think of it this way, if you buy $20k worth of products from a vendor, they most likely have reserved $200 to help you sell it. Ask them to pay for a small ad placement for their product with that money. Often times, you can do a catalogue of vendors giving each one its own page and then charging them to be in the book (using co-op funds). I was very successful with this technique and it elevated the brand of there store since I got high quality images and ads from vendors - graphics I could not afford to do on my own. 

One word of caution, many vendors will use your co-op funds to give you markdown dollars for slow moving inventory. First, they should swap that inventory out for you, but be careful if you ask for help selling it and then give you money off your next invoice as a way of paying for the sales markdown. This is great, but make sure it is not coming out of your co-op funds. The better plan of action here is to get a return authorization (RA) from the vendor and use that credit to buy better performing inventory. 

The truth is that for many smaller retailers, vendors never mention tools like co-op funds or markdown money or inventory returns to help you sell their merchandise.

Can you blame them? It means the vendor makes less money. It is up to you to be proactive in accessing these sales tools like co-op funds to help you store. Ask your vendor about it. They have it. They may tell you need to increase your purchases to get access to it, but if you are evaluating your inventory correctly. 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.