With channel sales, a third-party entity resells your product. And while cutting out the middleman may sound like reasonable advice for consumers and businesses alike, it isn’t always the best solution. Sometimes, the middleman may be the best way to reach your existing customers and scale your business.
Whether or not you have an existing sales team, using an indirect sales channel can open up new avenues for getting your product to market.
What is channel sales?
There are two main types of sales: direct sales and channel sales. Direct sales refer to sales that take place directly between the manufacturer and the consumer. Companies that rely on direct sales may hire inside or outside sales reps to sell their products.
Channel sales or those that take place through an intermediary. This third-party seller might be a reseller, a retailer, an affiliate partner, or another kind of salesperson. The key difference is that they don’t work for you.
Neither approach is inherently “better” than the other. It depends on your product, your brand, and how you reach your customers. There are successful businesses that only use one strategy or the other, or that rely on a hybrid approach.
For example, Apple sells iPhones and laptops directly to consumers on its website, and it hires sales reps to sell its products in stores. These are both direct sales strategies.
But it also allows retailers to apply to become Authorized Apple Dealers, an example of a channel sales strategy. This opens up a path for third-party retailers to sell products to customers they may already have a relationship with, or to attract new ones.
What kind of sales channels are there?
One of the things that makes sales channels appealing to businesses is that there are many different ways to get your product to market. Here are just a few examples:
1. Value-Added Resellers: A value-added reseller is a third-party seller who buys your product from you and “adds value” to it before putting it on the market.
This is common in the tech industry, where some products, such as individual software components, aren’t likely to be purchased as standalone items.
For example, few consumers buy Intel products directly. But everyone knows the brand thanks to the value that Apple’s hardware and software adds to Intel processors.
Teaming up with a value-added reseller can help you provide more customized options to buyers, expanding your opportunities for reaching new markets.
2. Online marketplaces
Online marketplaces allow you to sell your products through third-party platforms, such as eBay or Amazon, even if you have a direct sales channel of your own.
Although these platforms take a cut from your sales, they’ll put your product in front of people who are already shopping on the platform, giving you more exposure.
An online marketplace can be an alternative to selling products through your website, or to setting up a more complex (or expensive) e-commerce platform.
3. Distributors and wholesalers (including foreign distributors)
Sometimes your options are limited due to supply chain or geographical constraints, so turning to people who know your market or industry can boost your sales.
Distributors typically buy from the manufacturer, while wholesalers buy from distributors and sell the product to retailers.
Foreign distributors can help you deal with customs and other logistics, so you can get your product sold in markets that would otherwise be off-limits to you.
4. White label resellers
While label sales refers to the practice of marketing products under a store brand, rather than as a brand-name product. It’s common in the grocery and electronics industries.
For example, many Trader Joe’s products are made by well-known manufacturers, such as Wonderful Pistachios, Naked Juice, and more.
Why do manufacturers choose to “give up” their branding opportunities? One benefit to manufacturers is that they don’t have to spend money marketing their product.
In some cases, the same stores do sell branded products too, giving manufacturers two opportunities to make a sale -- as both a brand name and white label item.
4. Affiliates
Affiliates are independent sales reps or businesses who earn a commission when they make a sale. Unlike direct sales reps, they aren’t hired by your company as employees, so you don’t have to pay them a salary or provide them with office space.
On the downside, that means you have less control over how they market your product, and less input over what sales strategies they use.
The channel sales model has a whole host of benefits.
These are just a few of the channel sales options available to modern businesses. But why choose channel sales if it results in less control over the sales process? There are a few major benefits to using a channel sales model. These include:
More focus on the product. If your business is focused on developing and producing a high quality product, sales may just not be part of your game plan.
Instead of spending time and money hiring and training an in-house sales team, using a channel sales strategy can allow you to outsource that responsibility to someone else.
For products that require a lot of training or onboarding work, it may be more efficient to let authorized representatives do it for you. That’s how Salesforce and many other SaaS businesses manage to expand into so many different industries.
Marketing and distribution expenses can also eat into your profits. If you trust your sales partners do their job well, then the commission or fee they take may be well worth it.
Expand into new markets. Sales channels can allow you to sell your product in areas where distributors have spent years building up their networks.
Rather than trying to build up a whole new sales channel from scratch and compete with existing distributors, you can benefit from their experience and connections.
Distributors can help you get established in new locations and industries, including in unfamiliar overseas markets. You’ll save money on traveling to those regions yourself, and will have a local representative on board to facilitate your sales there.
Benefit from existing relationships. Many affiliates and resellers have an established customer base that trusts them to recommend high-quality products.
A consumer who shops on Amazon or their local retailer is unlikely to switch over to your company’s new store or website without good reason. They may simply buy a comparable product from their trusted seller instead.
By listing your products on online marketplaces where people already shop, or selling them through affiliates or resellers they trust, you can draw those customers in.
Try out new strategies. Finally, using multiple sales channels can help you figure out the best ways to market and sell your product. What works better -- branded items or white label sales? Online marketplaces or mail-order catalogs?
You can experiment with different strategies with less risk than you would have if you were managing every step of the process in-house.
But channel sales is not without its obstacles.
With that in mind, it’s important to acknowledge that channel sales isn’t right for every product or business. Here are a few of the problems to look out for:
Reduced control over the process. The main concern with channel sales is that you won’t have as much control over what your resellers and affiliates do.
What if an affiliate puts out flawed marketing materials or misleads customers? What if a reseller ignores your pricing strategy and undercuts your margins?
For smaller sales, this may not be as big of a risk. But if you’re working with B2B sales or other high-priced items, your reputation and revenue could suffer.
You can avoid this danger by only allowing resellers with appropriate authorization or training to sell your products.
Even then, if your sales depend on cultivating long-term relationships with customers, then you may be better off building those relationships with an in-house team.
High fees and commissions. One reason that many businesses prefer direct sales is to cut down on the fees that third-party affiliates and resellers take out of their profits.
But this really depends on the kinds of products you’re selling. After all, maintaining your own e-commerce platform and marketing your products costs money too.
You’ll have to decide whether the cut that your resellers are taking is worth the cost, and whether it’s reducing your expenses in other areas.
Remember, your reseller is doing work -- which may include storing and shipping your products -- which you would otherwise have to pay employees to do directly.
Less ability to adapt. The longer and more complex your supply chain is, the longer it takes to respond to customer feedback or adapt to a changing market.
With direct sales, you can compile customer data into a CRM and contact them directly with customer satisfaction surveys and follow-up offers.
But with channel sales, your partners may not be collecting or passing on the data you need to make sales forecasts and adjust your practice accordingly. They may not even want you talking with their customers, for fear you’ll cut them out of the deal!
The time it takes to make changes and assess their impact is more complicated if you have to mediate your customer relationships through multiple distributors.
Less teamwork. Since your affiliates are likely to work solo, they won’t benefit from the competitive spirit or coaching opportunities that come with working as a team.
Without a team leader to score and assign leads, or to step in and help close a difficult deal, sales affiliates don’t have the same support and incentives as an in-house team.
Additionally, they may not be able to spend as much time training themselves on new products as your (paid) inside sales team can.
How to implement a channel sales model:
The best way to implement channel sales starts with assessing where your company is at. Do you already have a direct sales strategy that works? Will your sales partners be able to adapt it to their own purposes, or will they have to start from scratch?
If you don’t already have a sales pipeline in place, then it may be unrealistic for you to expect your affiliates and resellers to solve your troubles. You may need the feedback you get from direct sales to help you refine your product and sales strategies.
But if you do have a proven sales strategy, then working with sales partners can be a great way to scale up your business without hiring an in-house team.
You may also benefit from channel sales if you plan to expand to a new location where you don’t have as many people on the ground.
You can base your partner program on similar programs offered by competitors, but try to avoid situations in which your partner sells for both you and your rivals. After all, you want them to have some loyalty and commitment to your brand!
It’s most important to find partners for your channel sales.
You’ll also have to decide what kind of partnerships you want to have with your affiliates and resellers. For example, you can choose a distributor model, in which your partner stocks your products on the shelves of existing retail stories.
Or, you can consider the white label model, in which your partner brands and markets the item as their own.
You can also work together, as in the case of an authorized retailer or affiliate program. You might provide some branding and marketing materials to your affiliate to make it as easy as possible for them to drive sales and get your product on the market.
Ultimately, the arrangement has to be beneficial to both parties. If your partners aren’t able to make money selling your product, then you won’t see a profit either.
None of this works if you can’t measure the success of your channels.
Finally, you need the right tools to track your sales figures, no matter which channels you use. While many inside sales teams use a CRM to keep track of their interactions with customers, you may need to make some changes to your existing setup.
If your sales channels include many distributors and vendors, you might want to invest in a partner relationship platform in addition to a CRM. Whichever platform you choose, the team at OnCourse can help you figure out how to customize it to suit your needs.
Whether it’s building a new CRM from scratch, or adding partner management tools to your existing platform, contact us today to schedule a demo and find out how you can expand your channel sales opportunities and reach your sales goals in 2020!