What is Channel Sales: definition, pros and cons, strategy
How to get a new product in front of customers and scale revenue? Some of the options include hiring new salespeople and investing in tools that will boost their efficiency. Another potential strategy – channel selling.
Channel sales definition
Channel sales are a sales model that presupposes distributing your product or service to the market through third parties. In other words, these are sales-related partners who don’t work directly for your company.
Who is a sales channel partner?
A channel partner is a person or entity that has a long-, mid-, or short-term relationship with your business to sell your product. Channel partners who work as an extension of your sales team can help increase your sales and customer loyalty. These are the examples of sales channel partners you may cooperate with:
- Affiliate partners
- Value-added providers
- Independent retailers
Channel sales example
Let’s suppose your company chooses to distribute your product or service through the affiliate partner ― one of the most popular tactics in B2B sales, according to 81% of businesses that already use this type of channel sales.
So, this is how the affiliate partnership works:
- You contact another company that agrees to cooperate and invite to join your affiliate program.
- The affiliate places links to your product on their webpage.
- When your product is sold through the affiliate’s link, the affiliate gets a commission.
This mode of cooperation is commonly a win-win for both parties. You have more chances to sell your product, while the affiliate can generate revenue from the link placed on their website.
Channel sales vs. direct sales
While channel sales require a third party to advertise a company’s product on their platforms, direct selling doesn’t need any middlemen. Deals can be closed online, e.g., via personal arrangements.
Companies undertake the channel selling outside their doors. Meanwhile, direct sales presuppose that the organization should build and manage a sales team. The latter is to operate as a single entity and be close to the target market. So, if a company wants to sell to several markets, it will need to have local teams to control the sales process.
Pros and cons of channel sales
Channel sales are one of the most top-selling models for small, big, and giant companies, and not without reason. They offer many advantages to businesses interested in constant growth. However, there are also some drawbacks your organization should consider before choosing this approach to selling. Let’s discover both.
Channel sales pros
- Considerably low marketing and sales cost. A channel sales partner is commonly trusted by their audience and already advertises their product to clients. This is why you can reach new customers at less cost. Similarly, if you decide to enter new markets, you’ll be able to do it more cost-effectively.
- Higher efficiency. It’s usually easier to build a new channel sales partnership than to hire new salespeople. Besides, a channel sales manager coworking with several partners and adding new ones into the mix can bring a company the same revenue as five or six salespeople in a much cheaper way.
- Brand awareness. With channel sales, your company has opportunities to be noticed by a wider audience, who might want to know about your brand a little bit more.
- Customer success. Since your new customers need onboarding and training, you can delegate these services to your channel sales partners who already offer them. Thus, you’ll be able to simultaneously concentrate on your existing clients and close new ones through your sales channels.
Channel sales cons
- Loss of control over the sales process. In channel sales, neither you nor your salespeople can directly interfere with the sales process. So, you can’t predict your revenue and assess your KPI.
- No flexibility. Working with an external group of intermediaries, you’ll find it difficult to message any updates concerning your product to them. Adding a new feature and asking them to change the selling strategy on the go will also be hardly possible.
- The risk for the company. You must be 100% sure you cooperate with a reputable partner. Otherwise, you risk tarnishing your image as well.
- Inaccurate customer feedback. Since you are not sure how your channel sales partner gathers feedback from clients, there is little chance you will get 100% adequate responses. What is more, it will take much more time for you to get them.
Does a channel sales partnership fit my business?
To determine whether a channel sales model is the right solution for your company, you should take into consideration the following factors:
Your company level
If you are a small tight-on-budget organization that is much concerned about growth, you may want to have a partner who will help you grow your business. As soon as you develop, you’ll be able to switch to direct selling. By the way, many high-growth companies tend to combine direct and channel sales, 8% of them using a channel model as a primary sales strategy.
Your product maturity
If you have just started launching your product, it’s more reasonable to see how it will work for your target audience and how you can improve it. So, direct sales will be a better model at this stage.
Understanding of your sales process
Before you delegate selling your product to channel sales partners, you should ensure you know how to sell your solution. This, first of all, pertains to defining your sales cycle. The lengthier and more complex it is, the more difficult it will be for your channel sales partners to resell your product.
Your current revenue
You should first get enough revenue to be ready for ups and downs, which will be unpredictable. Some experts recommend not to launch a channel sales strategy before you get at least $20 million in annual revenue.
How to manage a channel sales strategy
Although it’s not easy to manage and control a sales channel strategy, here are the steps you can follow to initiate an efficient partnership and manage it at the start.
Create sales enablement materials
Your channel sales partner needs to have a clear understanding of what they will advertise and sell on their platform. Thus, you should prepare a brief but detailed sales enablement training course where you will explain how your partner should present your product.
Plan the results sharing
Clarify what you expect from the partnership. Work out a plan on how to get performance metrics from the intermediary. Underline what results will be of the highest priority.
If that’s possible, agree with your channel sales partner on how you’ll be able to discuss intermediate results regularly. Try to schedule online meetings that will be convenient for both of you.
Objectively, channel sales partnership isn’t the only perfect way for your sales strategy. It has both advantages and disadvantages. So, before deciding whether to implement this model into your sales process, consider your company’s growth level, your product’s success in the market, and define your goals.
Channel sales partnership will allow you to expand your market through the trust your intermediaries have already built with their customers. And though it may bring you certain risks, it won’t — if you pick authoritative partners and cooperate on conditions that you will not directly, but still manage the sales process. Good luck!