Introduction
What is the biggest challenge that a sales team faces? No matter which product you sell, which strategies you adopt, or how big the sales team is, the biggest challenge that sales teams face is stagnant sales growth.
Every sales team wants to increase sales figures and boost revenue. However, time and resource constraints always hinder productivity, and growth takes a hit. That is where channel sales or indirect sales comes into the picture. What is a channel sales? A channel sales strategy allows sales teams to leverage third parties to sell products and services.
Many organizations adopt the channel sales strategy which offers a viable and game-changing opportunity to grow sales figures. This blog helps you learn the ins and outs of channel sales and how you can adopt this strategy to boost sales figures.
What is Channel Sales?
Let us answer the question ‘What is channel sales?’ and see how it can help your sales team grow.
Channel Sales Definition
Channel sales or indirect sales is a B2B sales strategy where organizations sell their products and services through third parties. These third parties can be called partners, distributors, agents, dealers, affiliates, etc. based on the nature of their relationship with the parent company. The organization provides the necessary training, tools, and support to enable their partners to sell their products and services effectively. On the other hand, partners manage the sales process and handle customer relationships.
Channel sales strategy allows organizations to leverage third-party sellers to sell or distribute their products and services. This strategy is majorly adopted by organizations to increase sales numbers and boost revenue. Here are four key benefits that organizations gain by adopting channel sales:
1- Boost sales figures and revenue through indirect sales channels, such as third-party marketplaces.
2- Reach new customers who are available on third-party marketplaces and looking to buy products and services as they trust them.
3- Increase market share by expanding to new geographic regions.
4- Reduce the dependency on direct sales which eliminates time and resource constraints.
Let us now understand the different types of channel sales available for organizations to adopt.
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Types of Channel Sales Partners
There are different kinds of channel sales partners depending on the type and requirements of the organizations. Here we have listed the most common types of channel sales partners:
Affiliate – Affiliates, such as bloggers and influencers promote a product or a service to boost sales and receive a commission in return.
Resellers – Resellers purchase products from the parent organization and sell them. They often offer added features and services to enhance the original value of the product.
Distributors – Distributors act as intermediaries between the parent organization and customers. They buy directly from the organization and sell them to retailers and customers.
Retailers – Retailers buy products from the parent organization and sell to end customers. They sell products typically in small quantities in their region.
Dealers – Dealers sell to end customers like retailers but often specialize in one specific type of product.
Agents – Agents oversee negotiations between buyers and sellers to conclude a sale and get a commission in return.
Alliance – They act like partners who sell products and services that are complementary to the parent organization’s products to boost their sales.
Franchise – Franchisee organizations pay a fee (franchise fee) to use the brand identity and sales model of the parent organization to sell its products.
How is Channel Sales different from Direct Sales?
There is a significant difference between direct sales and channel sales which pertain to parties involved in the sales of products.
In direct sales, an organization sells its products and services directly to their customers. They deploy an in-house team to sell their products. There is no third party involved in the transaction. For example, many clothing and apparel brands like Levi’s and Adidas sell clothes, footwear, and accessories directly to customers through their brand website and app.
However, in channel sales, the organization sells and distributes its products and services through a third party. Using the same brands as examples, Levi’s and Adidas also use channel sales strategies by selling their products through online marketplaces like Amazon and offline retail stores.
What are the Benefits of Channel Sales
Adopting a channel sales strategy brings several advantages to organizations and presents an opportunity for them to scale their sales, reach untapped markets, and reduce operational costs.
Here are various advantages of channel sales that organizations get when they adopt this strategy.
Boost your sales and revenue
The first and foremost benefit that channel sales offers to businesses is boosting their sales growth. Organizations can partner with resellers, distributors, and affiliates to significantly increase their sales volume. Since these channel sales partners already have an established customer base, they can leverage their network to sell products and services. As a result, parent organizations reach more buyers, leading to higher sales and revenue. This not only helps organizations to boost sales but also helps them close deals faster, especially in the case of complex products and services. Moreover, organizations combining channel sales with direct sales can create more revenue streams and reduce reliance on a single sales channel.
Expand to new markets
One of the biggest challenges organizations face when expanding to newer markets is limited resources and budget. Adopting the channel sales strategy can help them overcome this problem by using already created sales channels with existing customer bases and local presence. Simply put, channel sales can help organizations expand their reach to newer markets whether it is entering customer segments or geographical locations. The strategy also minimizes the risk associated with regional and cultural differences and the cost associated with managing regulations and logistics. Channel sales partners act as an extension of the organization’s sales force, allowing them to expand smoothly and cost-effectively.
Reduce distributing or shipping costs
Organizations are required to handle various costly and resource-intensive processes in sales, including distribution, logistics, and warehousing. These processes involve excessive costs which are bore by the organization itself. By working with channel partners, organizations can offload these expenses, as channel sales partners already have existing supply chains, storage infrastructure, and an established presence to reach out customers. This helps parent organizations to reduce the cost burden of all these processes and focus on more valuable operations. Furthermore, it also helps them deliver products and services to end customers quickly and effectively.
Improve brand image and recognition
If your business is growing or well established, brand image is something that every organization wants. Channel sales partners can act as brand evangelists that promote the brand and products as well as advocate on behalf of the brand. This significantly enhances the organization’s image, credibility, and reputation. Customers trust the organization and are likely to buy its products and services. On the other hand, channel sales partners gain more sales and strengthen market positioning. All this increases sales volume and revenue opportunities for the organizations.
However, there are certain disadvantages or limitations of channel sales that organizations must be aware of before implementing this strategy in their sales operations. If channel sales management is not done right, here are the consequences that organizations might have to face:
Less control over sales: The biggest downside of adopting a channel sales strategy is that the parent organization loses complete control over the sales of its products and services. As intermediaries and partners come in between to manage sales and distribution, organizations cannot completely control what they say about the product, how they communicate the value proposition of the product, and how they handle the end customer’s queries and experience with the product and service.
Revenue sharing: As organizations sell their products through different partners and intermediaries, they take a cut from the profit for their services which, in turn, reduces their revenue. In the case of retailers and resellers, organizations often provide bulk discounts and promotional offers which can further reduce their revenue. That said, it is obvious that these intermediaries work to grow the sales figures which can generate revenue multifold in the longer run.
Reduced brand exposure: Another drawback of adopting a channel sales strategy is that the parent business gets less facetime with the customers. Most of the activities in the sales process are handled by partners like retailers and agents, thus, the brand takes a back seat in getting exposure. As a result, customers tend to trust the intermediaries more than the organization, which can hurt its brand image.
Steps to Build a Channel Sales Strategy
Implementing a channel sales strategy involves proper research and planning. It is all about creating a channel sales management plan to keep the sales growing and consistent through different channel sales.
If your organization wants to know how to build a channel sales strategy, here is a step-by-step guide that can help you.
#1 Find the right channel sales partner
The first and foremost step in building a successful channel sales strategy is to find the right channel sales partner. The partner should not only be willing to sell your products and services but also align with your sales strategy, target market, and sales process. Here are a few factors to consider that can help you find the right channel sales partner for your organization:
- A partner should add value to your sales through better distribution, higher market reach, or new sales markets. Through these value-adding factors, the partner should contribute to the increase in sales of your product and service.
- A partner should align with the product, value proposition, target market, and sales strategy. This will ensure that there are no chances of inconsistencies and both organizations can grow together.
#2 Connect with the partner
Once the partner has been identified, you are required to set up a structure where both organizations can fit and improve the sales process. Here are a few ways in which your organization can connect with the partner
Selling with your partner: Selling with your partner can be a valuable model in the case of complementary products. Your organization can sell products with your partner, so they generate more sales and create value for the customers.
Selling through your partner: In this model, your organization provides the necessary tools, resources, and support to enable the partner to act as a direct sales channel for your products or services.
Partner can sell for you: The partner organization takes full control of the sales process – from lead generation and packaging to distribution and delivery of the product.
#3 Onboard the partner
After contacting the channel sales partner, the next crucial step is to onboard them. It ensures that they can effectively represent your brand and align with the business goals. Onboarding channel sales partner involves two key steps:
Define roles and expectations
Recruit members to create a dedicated team for the channel sales program. The team can include channel sales managers, leaders, and staff to support and manage the sales process. These members must be assigned roles and responsibilities to align with shared objectives.
Training and sales collateral
This involves providing proper training of the product, sales process, pricing, discounts, and other aspects that will help the team sell the products and services effectively.
#4 Monitor the progress
To measure the performance of your channel sales strategy, you should track the metrics to monitor partner contributions. Here are some of the popular metrics you can track:
- Total sales volume
- Total revenue driven
- Return on investment (ROI)
Is Channel Sales right for your business?
Channel sales has become a key component of business growth and success for major organizations today. It offers several advantages, including sales and revenue growth, expanded reach to newer markets, reduced distribution and shipping overheads, and the ability to utilize partner’s sales expertise and resources.
However, if channel sales management is not done right, organizations may face challenges, such as less control over sales, reduced brand exposure to customers and reduced profit margins.
To conclude, if your product is scalable and your focus is more on sales growth and expanding to newer markets, channel sales might be the growth lever you have been looking for.
FAQs
1- What is a channel management example?
A channel sales management example is ‘Organization A’ that produces hardware products and partners with local hardware stores to sell their goods. ‘Organization A’ becomes the parent company and local hardware stores become channel sales partners.
2- Is channel sales B2B or B2C?
Channel management can be both B2B and B2B. It completely depends on the organization, target market, and channel sales partners.
In B2B, an organization can partner with distributors or agents to sell their products to other small businesses or retailers.
In B2C, an organization can partner with retailers to sell their products to end customers.
3- Why choose channel sales instead of direct sales?
Channel sales leverage third-party partners for wider reach and lower operational costs. If channel sales strategy fits your organization, it can drive better results for your sales goals.
4- Are there any disadvantages of channel sales?
There are certain disadvantages of channel sales which include less control over sales, reduced brand exposure to customers, and reduced profit margins.
5- Can one organization have multiple channel sales partnerships?
Yes, one organization can partner with multiple third parties, like retailers, distributors, and agents to sell their products to different customers in different regions. Channel management becomes crucial in managing all the partners.
6- How to measure the performance of channel sales strategy?
Your organization can track various metrics to track the performance of a channel sales strategy. Some of the popular metrics you can track are:
- Total sales volume
- Total revenue driven
- Return on investment (ROI)
