While growth is the hallmark of a healthy business, it can come with its own set of challenges. Many companies want to find a scalable model of sales that will grow with them. Channel sales could be just the answer when you need a low-risk and efficient sales model that can be adjusted as your business grows.
Channel sales can give your business an opportunity for growth beyond hiring more sales reps and expanding your sales team. Most companies utilize channel sales at some point because it is an efficient means to sell to your potential markets without a large sales team, and a chance to potentially break into new markets.
Here is a breakdown of what channel sales is, if you should be using it, and some of the top channel sale strategies to get started.
What is Channel Sales?
Most simply, channel sales use a third-party to sell your product for you. Whether you use an affiliate partner (who receives a commission), reseller or value-added provider, channel sales allow you to sell your product without using your own sales team or location directly.
Channel sales are an alternative to direct sales, where you have an in-house team that sells directly to clients, either online or through your own location. Many companies opt to do a mixture of both and have their own dedicated sales team with partners that also help to sell their product.
An example of direct versus channel sales is Apple. If you go to the Apple store or the Apple website to buy their newest phone, then you are using direct sales. However, if you were to buy their newest phone at Best Buy, you would be using one of their channel sales to purchase the same product.
Advantages of Channel Sales
Even with a successful direct sales program, many companies opt to include channel sales into their strategy. Depending on the business, some may choose to solely utilize channel sales. Here are some of the top reasons that companies implement a channel sales strategy:
Lower Sales and Marketing Cost
Compared to running an in-house sales team, channel sales costs much less in overhead. If someone else has a brick-and-mortar store, staff, and inventory, much of the cost of selling can be mitigated. Channel sales also take advantage of the cost and effort the partner has put into building a business and clientele, so it can be a way to expand or break into the market without spending as much to run your own campaign.
In the channel model, one channel sales manager can work with numerous partners to assist them in selling the product. This cuts down on the need to hire multiple salespeople: one channel manager can take the place of five or six salespeople.
Once you have an established program and settled on a proven procedure, it is easy to bring on additional partners as needed. This is much easier than bringing on additional salespeople, which would cost more and require more training and oversight. You can add on more partners, or scale down if needed, depending on how your product is selling.
Many salespeople struggle with the concept of cold-calling or –emailing. Building trust is one of the most difficult aspects of selling a product. However, with channel sales, you can use the trust that your partner has already established. They already have established relationships within their market, so your endorsement will be enough with most potential customers. Channel sales allow you to create a brand presence with little effort because your partner has already established trust with your potential clients.
Because of the lower cost and increased efficiency, channel sales are a relatively low-risk way to assess and try out a new market. You can try new products, packages, promotions, and campaigns with a partner without potentially risking as much if you were to try it in your direct sales.
Easier Onboarding and Service
If you align with partners that can provide customers with training, onboarding and customer support, you can delegate your service process to your partner and concentrate more on sales. The right partners will allow your company to focus on new business while they handle customer implementation and any issues.
Challenges of Channel Sales
Although many companies choose to implement channel sales, there are some drawbacks to this model. However, you can avoid the pitfalls by anticipating and working around their inherent weaknesses. Here are some of the challenges in channel sales.
When you are working with a partner you have little say in the sale than you would with a salesman who is working for you. You cannot directly manage the sales process, so you are often at the mercy of your partner whether or not the sales close and their timeline. You may also end up with a partner who is poor at sales. If it were your own salesperson, you could coach them and put them on a performance plan. However, you have none of that control with partners.
Although you may save in sales, efficiency, and marketing, channel marketing will eat into your revenue. Depending on the partner and their value, you will be looking to share anywhere between 20-50% of the revenue in each of their sales.
Less Predictable Revenue
It is difficult to anticipate the revenue you will receive when you have little to no control over the sales process. However, many companies offset this risk by engaging more partners and utilizing a larger pipeline.
Less Access to Customers
You no longer have direct access to your clients to get valuable feedback. Some partners choose to keep you from directly contacting clients if they are protective over their customers. Even with those who do not ban contact, it can take much longer to get their opinion than in traditional direct sales.
Harder to Make Changes
Implementing a change in process, product, communication or any major shift is more difficult in channel sales. Instead of changing with one team, you have to convince multiple teams to adapt. Although it is not impossible, it can make any change more of a headache.
On the opposite side of building trust, aligning yourself to a partner that is subpar and has a poor reputation can reflect poorly on you. It is essential that you properly vet any potential partner to avoid damaging your brand and customer trust.
Is Channel Sales Right for You?
If you think that channel sales might be the right fit for your company, keep these factors in mind:
The success of your product will depend on where it is in the product life cycle. If your product is still new and you are working out the kinks, direct sales will allow you to get the quick feedback that you need to improve your product. You may want to put off channel sales until your product is more set and settled.
Sales Cycle Length
If your product complicated and full of intricate parts that need to be explained to a potential customer? Or is it a fairly simple product that can be sold quickly? The more research your product requires and the more complicated it is, the more you would benefit from direct sales.
Smaller companies tend to benefit most from the channel sales strategy. Larger companies can typically afford the larger marketing and sales department that direct sales require. However, company size alone does not determine whether it is right for you. Coca-Cola is the perfect example of a large company that almost exclusively uses channel sales!
Well-Researched Sales Process
The more that you can explain to your partner, the better they can sell your product. In order to best use this strategy, you need to have a well-developed sales process where you can identify buyer personas, pain points, buying triggers, average sales cycles, etc. This is all key to making sure your partners have everything they need to identify and sell to your buyers.
Because the length sales cycle is likely out of your hands, and it can use a lot of time and energy to get a system started, if you need money right away, direct sales might be best for the time being. Channel sales is a great long-term investment, but not if you need revenue as soon as possible.
Channel Sales Strategies
Channel sales usually express itself in three strategies: selling with your partner, selling through your partner and your partner selling for you. Companies do not necessarily stick with just one strategy, though, and they often combine them in a way that suits their business best. Here’s a breakdown of each strategy:
Selling with your partner
Typically occurs when you sell complementary services. It typically works much like a cross-sell. Web designers, for example, will sometimes recommend a freelance writer to write the copy for the web pages they design. This type of partnership gives one business more work, while the other enhances their value by recommending a complementary service.
Selling through your partner
Works best for partners that are already selling several similar products and services. A well-known example would be a department store, where multiple vendors sell similar products.
Your partner selling through you
Means that they incorporate your product into their brand. In fact, customers might not even know that you are making the product because it is absorbed into their company. Generic brands are an example of this: stores will absorb the product under their label.
Channel Sales for More Efficient Growth
While channel sales can be a significant investment of time and energy initially, it can potentially take your business to a whole new level. You can more easily widen your market in ways that direct sales struggle by using the trust that partners have built up with their customers. It offers flexibility based on your size and goals and allows you to experiment with less risk. Channel sales allow you to create new business relationships that can continue to benefit you.