Channel sales utilise third parties to get your product or service into the marketplace.
Channel partners are otherwise known as value-added resellers (VAR), who work with your direct sales teams in order to penetrate new markets in a cost-effective manner.
Are you using the right channel sales strategy and channel partners to properly take advantage of their customer base and add value?
What are the 4 Channels of Distribution?
Direct Sales
Direct sales don’t involve outside parties – it’s just you and the customer. This channel utilises the most traditional type of selling: face-to-face. It means that the only two steps for your product or service are from manufacturer to customer.
Think about going to a market stall with farmers, crafters, and bakers. Buying through this method is a form of direct sale, as there is no supermarket middleman or third-party software.
Direct sales mean that the original manufacturer is responsible for the entirety of revenue and has full control over the sales. This means the marketing, processes, and operations are reliant on a single source.
Most often, companies selling perishable goods prefer a direct sales model since the supply chain is short and simple. These types of goods are usually limited geographically by their perishable nature, which means manufacturers often can’t use a channel sales partner to scale.
Intermediaries
Intermediaries distribute products with a third party in the middle of the sales process. Whether this involves sales reps or a retailer as a partner, the manufacturer takes on more of a wholesaler role. In this way, the product owner can fulfill orders without relying on their own direct sales and marketing.
There are different ‘levels’ of intermediaries, which indicate the number of extra steps in the channel sales model.
For example, one-level might involve the product passing through a manufacturer to a retailer and then to the consumer.
Alternatively, two-level might include a white labelling stage where the manufacturer becomes a wholesaler. In this method, your brand is repackaged and a sales agent takes on the task of selling this to the consumer. It’s suitable for products in high demand, but where consumers are not in a single location.
Intermediaries are a useful way to sell your product as they allow partners to take on the marketing responsibilities and access a new target market. The right partners can help scale your business at a low cost compared to the effort it would take to grow it individually.
Dual Distribution
Dual distribution is the act of using a number of different channel sales partners at once. Surely you know the phrase ‘don’t put all your eggs in one basket!’ Dual distribution is a channel sales strategy that companies use to raise brand awareness across multiple markets.
Depending on your business, dual distribution might look something like this:
- You get your product into a supermarket
- You use an online platform like Amazon to list products
- A sales rep goes from door to door selling your goods
Dual distribution does not limit the number of potential partners and therefore nor the number of potential customers. But it can be costly to begin with as each partner may require an initial investment that, as a startup, you just can’t afford.
Reverse Channels
Finally, reverse channels change the flow of the sales process by making a reseller the beneficiary. This is most often seen on ‘recycling’ sites like Depop, where the consumer can sell clothes second-hand.
Due to the evolving technology that exists, products and services are now accessible through more channels than ever. It means that while manufacturers have less control over revenue, channel managers have more opportunities to benefit from sales profits.
While reverse channels aren’t hosted in a sales program or with specific training, these partners add value in their own right when recycling the original product.
Difference Between Direct Sales and Channel Sales
The main difference between direct sales and channel sales is the addition of a third party. The channel sales team removes the need for contact between the consumer and manufacturer, so channel partners take on the customer interaction.
The other major difference between direct sales and channel sales is that a percentage of profits go towards partners when they are utilised. While more effort is required from the manufacturer to sell directly, they keep the entirety of the revenue in direct sales.
So should your business use channel sales? Let’s take a closer look at the pros and cons.
Pros & Cons of the Channel Sales Process
Scaling
The major benefit of utilising channel partners is that it is easier to scale. When you implement a channel, your partner already has customers for your products or services. This makes the process great for efficiency.
Cheaper
A channel manager can work with a number of sales channels at a cheaper cost than hiring those four or five individuals as full-time sales reps. While internal sales teams are typically compensated with a salary, you owe partners based on performance. Therefore, the channel partner is rewarded in commission only after the sale (once you have also made money).
Access New Markets
Indirect sales rely on your partner to introduce new customers as well as customers in a new market in which your business already operates. Partners add value by increasing brand awareness as every new sales channel opens up.
Qualifying Channel Partners
Unfortunately, it is difficult to find and qualify channel partners to a good degree of certainty. Even if you have a dedicated channel sales manager, it’s hard to determine which channels would be a better fit for your ideal customer.
Commission
As discussed, the channel partner takes over strategy in order to sell your product, but this means that your company loses out on a portion of the profits. For new startups, this is a disadvantage as it affects the net profits and working capital turnover left in the business. You need to ensure that new partners are sustainable for business growth.
Channel Sales Strategy
The right channel sales strategy for your company depends on the nature of the business and its available funds as you seek development and growth. As a startup, it’s important to have a concrete sales strategy and process that will enable partners to quickly onboard and add value.
But the other key concern is onboarding partners sustainably. Many startups struggle with accessing the working capital to invest in training and growing the team. But building a robust channel sales strategy relies on investment into the partners. So having enough working capital to ensure the development of a strong channel sales strategy is key.
To see if you’re eligible to access funding, check out the pre-application to an advancement on the government’s tax-advantaged R&D scheme.
