What are Channel Sales?

Channels sales work in the opposite way of direct sales. Instead of going straight to the consumer, organizations go through third party vendors like distributors, resellers, or other partners.

These sales organizations then function as a middleman between the company that made the product and the consumer. In this way, you might think of a well-developed channel sales strategy as one that leads to indirect sales. 

You can think of this with most large companies. A small business may be able to get by with selling directly to the consumer but imagine for a second all that it would take for Google to sell all their offerings directly to their target markets. They’d have to hire thousands of reps and manage a ton of different workflows. That’s why Google and many other companies opt for channel sales. Google sells their solutions at a discount to the channel partner and the partner gets the product to the consumer.  

Types of Channel Sales Partners

Channel sales partners come in various forms. We’ll highlight some of the most common choices for B2B companies.

Resellers: A reseller works kind of like a retail store. They purchase your product at a discounted rate and sell it with nothing added.

Affiliate Partners: An affiliate partner promotes your product in some way – maybe through a website, blog, or another marketing effort – and directs the customer to your website or store so they can make a purchase. Usually, the affiliate receives commission when a customer makes a purchase on the product they promote.

Distributors: The organization sells the product to a distributor who then finds customers of their own that they distribute to.

Wholesalers: Organizations may also just jump over the distributor and sell directly to a wholesaler that would then sell the product to their customers.

Value-Added Providers: A value-added provider or reseller is a business that purchases a product from other companies – usually within the IT industry – and adds value by bundling it with additional products or for the purpose of reselling.

Independent Retailers: These are smaller retailers not associated without connection to an established brand.

Dealers: A dealer faces the consumer directly and sells the product produced by the organization.

Agents: Agents do not have ownership of the product but do engage with the end-user on behalf of the organization.

Consultants: Consultants might serve as sales partners, especially for software products, because they can encourage their clients to use certain products that come from the partnering organization.

Pros of Channel Sales

There are plenty of reasons why both smaller and larger organizations choose to develop a channel sales strategy. Some of the pros include reduced sales, marketing, and distribution costs, an increased chance at scaling, and a less expensive way to enter new markets.

Reducing Sales, Marketing, and Distribution Costs

Working with a channel sales partner allows your organization to hand over the reins of sales, marketing, and distribution to another trustworthy company that specializes in those fields. This can not only lead to better results in the end; it can save the organization a ton of money at the start because they won’t have to go through all the expenses that come from a full-blown sales operation.

Increased Chance at Scaling

The best part about channel sales is that you can always add more channel partners. Once an organization has a model in place with a strong channel manager and proven strategy, all they must do is add more partners into the mix. What worked in one channel will very possibly work in another even a few adjustments need to happen for the contexts. Combining the two could double your results without doubling your efforts.

Less Expensive Market Expansion

The channel sales model can help improve business development as organizations team up with partners local to the area. This entry point becomes a cost-efficient way to establish a presence in the new market without taking on any huge risks like leasing office space, hiring local talent, or creating context-specific advertisements.

Cons of Channel Sales

While many organizations can defend their decision to follow the channel sales model, others have valid concerns that should not go unnoticed. Those companies considering whether channel sales are right for them should prepare themselves for a lack of control, fewer revenue predictions, and more partner discounts.

Lack of Control

Allowing another company to manage your entire sales cycle sounds nice when it comes to the cost and headaches associated with overseeing such a process. But giving up control like that can also mean giving up control on how your product gets sold. There’s now someone standing between you and your end user or customer. Sure, that person is your partner, but that does not mean you get to tell them what to do. They are going to do their thing. You just must let go and trust them.

Fewer Revenue Predictions

The lack of control extends into making predictions as well. Many channel partners will not let the other organization see the whole pipeline. After all, they don’t partner with just one company, and they’ve got a business to protect, too. This makes it difficult for the partnering organization to predict revenue because they cannot see where their customers are in their sales journeys. Organizations, in some cases, can at least offset this by increasing their partner pool and creating a larger pipeline.

More Partner Discounts

Partners will rarely pay full price for your product. If they did, they’d cease to exist. Instead, they receive the organization’s product at a discounted rate so that they can get a reasonable profit on their end as well. For the main organization, this means potentially losing out on higher profits. Many see this as a necessary risk in the long run, but others see this as a red flag for channel sales.

Overall, the channel sales model has some flaws, all of which can be overcome with a little bit of hard work and strategy. It ultimately comes down to the organization’s desires: do you want more efficiency or control? That’s the biggest question.

What are the Differences between Direct Sales and Channel Sales?

The biggest differences between direct sales and channel sales all come down to control. In direct sales, your organization owns the reps’ workflows and their day-to-day activities. If you need them in the CRM, they’ll get in the CRM. Channel partners, however, don’t work this way. No matter how much you try to change, they reserve the right to have their own workflows and their own priorities.

This can become really frustrating for leaders because you can’t use the same technology to assign leads to inside sales reps and channel partners. Doing so would require them both to be in your CRM or partner portal and channel partners use their own. That’s why leaders need to consider the right sales stack for their teams to use.

How to Build a Sales Stack for Channel Sales

The sales stack necessary for channel sales success will look way different than one for an internal team. Still, any successful partner program will require a few tools if you want to get the most out of those partner relationships. The following list includes best practises and things to consider:

  1. Utilize a PRM tool

Like a CRM for a direct sales strategy, a partner relationship management (PRM) tool functions as the backbone for channel sales. You want to make the most out of your partner relationships, and a PRM allows you to manage your contacts and stay on top of those relationships.

  1. Easily integrate with the partner’s tech stack

Since you won’t be able to control the partner’s tech stack, the least you can do is integrate with their existing tools. Doing so allows you to input your data into their workflows, reducing the amount of information that slips through the cracks.

  1. Control lead assignment, distribution, and management

This might be the most crucial element of a successful channel sales strategy. Too often, organizations just treat every lead like they’re the same, sending them to just any channel partner. If your organization can ensure that the right leads are going to the right sales channel every time, you’ll see a lot more success. Each channel meets specific customer needs and sending them the leads with those needs will help them succeed.

Enabling your channel sales to close sales successfully is no easy task.

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