Study any successful eCommerce business and you’ll likely notice a common trend: they rarely put all of their eggs in one basket.
Instead, they have a highly-diversified portfolio of channels by which they can sell and deliver goods and services to customers. This helps companies diviersify their risks to avoid an unexpected change like a Google search update or a wholesaler filing bankruptcy from completely ruining their business overnight.
According to Forrester, 75% of all the world’s commerce is made up of channel sales — that is, businesses selling indirectly through third-party partners.
Directly dealing with customers allows successful companies to control the sales process from beginning to end, and using sales channels indirectly provides them access to untapped markets and new prospects.
This article will examine these two approaches to sales and explore the pros and cons of each before giving you what you need to develop a channel sales strategy for your business.
What are channel sales?
Sales channels are the avenues through which businesses market and sell their products or services. A company’s sales strategy will usually involve a mix of direct and indirect sales channels.
Direct sales channels are when a company sells its products or services to customers, either through its own sales force or through an eCommerce platform.
Indirect sales channels, on the other hand, are when a company uses third-party intermediaries to reach customers. Common examples of indirect sales channels include distributors, wholesalers, and retailers.
Most successful companies combine channel sales with direct sales. For example, a company might use a direct sales force to target high-value customers while also selling its products through retail outlets to reach a mass market.
An example of this would be Apple, which sells its products through both its own Apple Stores and through third-party retailers such as Best Buy.
What’s the difference between channel sales and sales channels?
Before we move on, we need to make sure we get our definitions straight.
Channel sales refer to the practice of using third-party intermediaries to reach customers, while sales channels refer to the specific avenues through which businesses market and sell their products or services.
In other words, all channel sales involve sales channels, but not all sales channels are channel sales.
For example, a company that sells its products directly to customers through its own sales force is not using a channel sales strategy, even though it is selling its products through a sales channel.
How do channel sales differ from direct sales?
When manufacturers and producers sell their products directly to the public online or in company-owned stores, they control every facet of the sales process.
They decide how their products will be packaged and displayed and what kind of experience customers will have. When manufacturers use sales channels, they give up this kind of control and place their reputations in the hands of third parties.
However, entrusting products to a channel partner doesn’t come without benefits, as well. Namely, it allows companies to tap into new markets and reach new customer segments that they might not have been able to reach on their own.
For example, a company that sells sports equipment might find it difficult to break into the market for children’s toys. However, if that company partners with a retailer that specializes in selling toys, it can get its products in front of a whole new group of potential customers. These customers may not be familiar with your brand and so do not know to go to your website. But once they see it in a store they are already used to shopping in, you have a much better chance of acquiring a new customer.
Why use channel sales?
Sales channels allow companies with innovative products or unique selling propositions to grow very quickly and relatively inexpensively.
Opening a branded chain of retail stores and hiring and training the staff that would be required to run such an operation would take years and cost millions. Even if a company isn’t opening stores and just plans to use its website, marketing a totally new brand to unfamiliar consumers can be expensive, depending on the product category.
Companies that would like to have some sales coming in right away could accomplish almost as much by signing a deal with a reputable and established retail chain.
It’s a win-win scenario: businesses leverage existing infrastructure while the retailers collect on a percentage of the sales to keep their own business running.
Sales channels are a great way for companies to reach new markets quickly and efficiently. However, it’s important to consider the pros and cons before entering any agreements.
The pros of channel sales
There are several advantages to using sales channels:
- Increased reach: A big company that wants to establish a presence in a new country could do so quickly by signing on with a local distributor. The distributor would have the connections and knowledge required to get the products into stores quickly and efficiently.
- Reduced costs: As mentioned, sales channels reduce costs. They can be less expensive than direct sales, and the company avoids the costs of setting up and running its own retail operations.
- Trust is built in: Consumers tend to trust big retailers more than they trust individual producers. When a new company uses established sales channels, it gains instant credibility. For example, the high-end grocery chain Whole Foods has a reputation for quality. As such, they’ve earned trust from their loyal shoppers, who will likely ascribe the same level of quality to anything stocked on Whole Foods’ shelves.
- Rapid experimentation: A company that wants to test the waters in a new market for things like marketing campaigns and new products and customer bases in a low-stakes environment can do so quickly and cheaply by using sales channels. If the experiment is successful, the company can then invest more heavily. If it’s not, it can move on without having wasted too much time or money.
- Risk reduction: When a company uses channel sales, it spreads out the risk of launching a new product. If the product is a flop, the company likely won’t be stuck with a bunch of unsold inventory.
- Combined maintenance and solutions: Some companies that use channel sales find that they have the mutual benefit of seeing an increase in the value of their products. For instance, a catering business may partner with a beverage business and, as a result, be able to offer their customers a bundle deal and a one-stop shop for all their party needs.
- Better scaling: If you have established a channel sales model that has aspects such as proper incentives, co-marketing, relevant revenue sharing, and other relevant plans, you will be able to scale very effectively when you add more channel partners into the equation. In this situation, a partner manager is able to manage multiple partnerships that will bring in money that would otherwise require a whole in-house sales team to manage things.
The cons of channel sales
There are some potential drawbacks to using channel sales, including:
- Loss of control: When products are sold through channels, the manufacturer or producer has less control over the sales process, including pricing, how the product is displayed, and how it’s promoted.
- Increased competition: When a company uses channel sales, it risks having its products copycatted by competitors. If the product is successful, others will want to get in on the action.
- Lower margins: The middleman takes a cut of the profits, so companies that use channel sales usually have lower margins than those that sell directly to customers.
- Less predictable revenue: Because channel sales can be volatile, it can be hard to predict how much revenue a company will generate. This can make it difficult to plan for growth.
- Risk to your brand: If a company that sells through channels is not careful, its brand could be damaged. For instance, if the company’s products are selling well but its customer service is poor, it could reflect badly on the company. That’s why it’s important to choose a channel partner who’s known for a good reputation and excellent customer service.
Types of indirect sales channels
The most common type of channel sales is through online or brick-and-mortar retailers, but there are other options as well:
- Wholesalers: These are businesses that buy products in bulk from manufacturers and producers and resell them to retailers.
- Distributors: These companies buy products from manufacturers or producers, store them in warehouses and then sell them to retailers.
- Agents, brokers, or affiliate partners: These are independent salespeople who work on commission. They don’t usually take ownership of the products they sell but act as intermediaries between buyers and sellers.
- Direct mail: This is when products are sold directly to consumers through the mail.
Who (and what) are channel partners?
Channel partners are individuals or organizations that provide companies access to customers that would otherwise be beyond their reach.
Manufacturers wishing to expand overseas can avoid red tape by entering into agreements with foreign retail chains and distributors.
Companies that open stores on popular eCommerce platforms like Amazon, eBay, and Etsy gain access to the vast amount of traffic these sites generate. There is always a cost associated with this access, but it is usually a price worth paying.
What makes a good channel partner?
Good channel partners sometimes provide a halo effect that can help fledgling companies as they work to build their reputations. In other situations, good channel partners better understand local laws and regulations or have transportation, warehousing, and distribution infrastructure in place.
The attributes that companies should look for in channel partners are determined by the nature of the challenges they will face, but they should always seek out capable partners that share their values and approach business in a similar way.
High technical expertise
You should make sure that any channel partners you do business with have enough technical expertise to handle their responsibilities and provide whatever customer support is required.
Failing to perform the necessary due diligence before entering into a channel sales agreement can leave companies at the mercy of inept or dishonest partners, which can cause great reputational damage.
To avoid this pitfall, look for partners that conduct business professionally and treat their customers as well as you do.
Complementary to your product
A company in a similar line of business or with a complementary product could be a very useful channel partner. When complementary items are bundled together, the benefits of the package often outweigh the combined benefits of the two products.
Experts have named this phenomenon synergy marketing. When a channel partner is in a similar line of business but does not have a similar product, they may offer more attractive terms to fill a hole in their lineup.
Aligned with your market
A channel partner that does not operate in the same market is unlikely to generate many sales.
If your company makes household safety products for senior citizens living in New England, a Las Vegas-based retail chain known for its youthful and avant-garde clientele is not the channel partner you should be looking for.
Instead, you should look for partners with similar customers to yours, even if they sell different products.
Similar sales processes
Sales channel partners sometimes conduct thousands of transactions daily, and they exchange a lot of information.
When all of the parties involved have similar sales processes, things tend to go more smoothly, and fewer things slip through the cracks. Doing business with a partner that has a similar sales process can also provide opportunities.
When partners sell complementary products online, in stores, or through a network of affiliates, their sales processes will likely provide several excellent upselling opportunities.
More benefits of channel sales
Channel sales bring in business in three ways:
- They give businesses an opportunity to make new sales
- Sell more of the same products to existing customers,
- Sell different products to existing customers.
The relationships that give rise to these opportunities are often quite complex, and their study has given rise to new terms like reverse channel, direct distribution, and intermediary networks.
Selling through intermediaries or intermediary networks
The vast majority of channel sales are made by third parties like retailers. These third parties are called intermediaries, and it sometimes takes two or three of them to complete a transaction.
A second intermediary enters the picture when a manufacturer sells to a wholesaler or distributor instead of a retailer.
A third intermediary may become involved if a sales agent is needed to sell perishable goods quickly to clients worldwide.
Let’s consider this with a real-world example. Imagine you own a small winery in Napa Valley and want to sell your wine internationally. You could try to set up meetings with potential buyers all over the world, but that would be time-consuming and expensive.
Instead, it would make more sense to work with a distributor in each country who can handle the logistics of getting your wine to stores and restaurants.
There are three parties involved here: the manufacturer (you), the distributor, and the retail stores. And there are two types of channel sales: indirect and direct.
Most sales channels follow a predictable path. A manufacturer makes a product that is then sent to a distributor and a retailer before being sold to the customer or end user.
These arrangements are designed to get goods flowing in one direction and money flowing in the opposite direction. However, reverse channels are different.
Reverse channels are created when customers find uses for products that manufacturers never dreamed of and start selling them in completely different markets. The product’s journey continues in these situations, but no extra money heads the other way.
For example, Apple never intended for its iPhones to be used as cameras. But that’s what many people use them for, and there are now a number of businesses that have sprung up to take advantage of this trend.
One such company is San Francisco-based Luma Labs, which sells iPhone camera cases and accessories. The company’s products are designed to help people take better pictures with their iPhones.
Of course, their entire business model is built upon Apple’s products, but none of their profits actually flow back to Apple.
Luma Labs is just one example of a company that has found a way to use a reverse channel to its advantage. There are many others out there, and the number is only likely to grow as manufacturers continue to come up with new products and technologies.
Direct distribution channels
A direct distribution channel is a team of agents, canvassers, salespeople, or representatives that deal with customers either face-to-face or online.
Sales parties that give agents or representatives an opportunity to demonstrate their products in front of a friendly and familiar audience are a popular kind of direct distribution.
These channels are called direct, even though salespeople could be mistaken for intermediaries because sales are not made in fixed retail locations.
Dual distribution arrangements are common in retail sectors like consumer electronics.
These arrangements involve manufacturers selling products directly to consumers in company-owned stores and distributing the same products to independent retailers, small retail chains, and big-box outlets.
Manufacturers are often tempted to place their thumbs on the scale in these situations and offer better warranties or other perks in their own stores.
This temptation should be resisted as it could make life difficult for partners and jeopardize relationships that took time and effort to build.
An example of a dual distribution arrangement is Apple’s relationship with Best Buy. Apple sells its products directly to consumers in Apple Stores and also distributes them to Best Buy, where they are sold to customers alongside products from other manufacturers.
How channel sales programs are measured
Monitoring the success of a sales channel can be challenging because it involves looking for trends and opportunities to improve efficiency in data taken from two or more companies.
How do you compare analytics from a brick-and-mortar store with an intermediary seller to determine ROI? It’s like comparing apples and oranges.
This is easier when all of the parties involved agree to focus on key metrics and then gather the information in a consistent manner.
Maintaining and nurturing personal relationships is also important. A candid phone call with a sales partner can reveal more valuable information about the state of a sales pipeline in five minutes than poring over documents can uncover in a day.
Maintaining and strengthening partner pelationships
Retailers, wholesalers, and distributors have many products and sales opportunities to choose from, so you will have to make yours stand out if you want to attract their attention.
Agreeing to bear some of the ramp-up costs or offering an incentive program would probably garner plenty of interest in your opportunity.
That said, you should not overlook things like training programs and coordinated marketing campaigns that can strengthen relationships and improve the chances of long-term success.
In other words, always think “win-win.”
KPIs and success metrics
You can glean useful information from corporate documents far more quickly if you and your sales partners agree to collect and share key data.
Here are some of the metrics and key performance indicators you should think about monitoring if you want to keep track of sales channels:
- Annual and quarterly pipelines
- Marketing funds spent by each partner
- Cost of recruiting a new partner
- Training and onboarding costs
- Length of the sales cycle
- Cross-sell and upsell rates for each sales channel
As you can see, the success of your sales channels can be measured in a number of ways once everyone decides on which metrics matter most. However, the most important thing is to track your sales numbers.
You should also monitor key performance indicators like customer satisfaction, retention rates for partners and intermediaries, and monthly, quarterly, and annual gross revenues.
These metrics will give you a good idea of how well your channels are performing and whether or not they are meeting your expectations.
It’s also a good idea to keep an eye on emerging trends in the sales channel industry so you can adapt your strategy as necessary.
The landscape is always changing, so you need to be prepared for anything. By staying up to date with the latest trends, you can ensure that your channels are always working to their fullest potential.
Building a channel sales program
Profitable sales channels are built over time by partners that are committed to each other’s success. If this is your goal, you will need a recruitment strategy that identifies and attracts the right partners and an onboarding program that puts them on the road to success.
Here are a few things you should keep in mind as you build your channel sales program:
You can take a passive or proactive approach to sales partner recruitment. Passive techniques like website inquiry forms are simple and inexpensive to set up, but they may not attract the kind of partners you are looking for (especially if you’re not driving qualified traffic to your site).
Approaching good-fit partners directly solves this problem, but approaching them first may put you at a disadvantage from a negotiation perspective.
Sales partners sometimes lose enthusiasm when initial sales are disappointing, so you should do everything you can to help them hit the ground running.
You should give them immediate access to information about your products, sales cycle, and corporate culture, and you should check in with them regularly to see how they are doing.
Taking these steps early on is worthwhile because they establish candid and open communication and improve the chances of success.
Connecting with partners
Professional relationships are most productive when all of the parties involved have common goals and know where they stand. When you enter into an agreement with a sales partner, everybody involved should know what is expected of them and what they can expect in return. However, you should try to keep things relatively simple, as overly complex programs are usually unpopular.
Finding the right partners
You should look for partners that fish in the same waters as you. They should deal with the same kind of customers, operate in an area aligned with your primary market, and have the technical know-how to provide customer service and repairs.
You should also limit your search to partners that bring something to the table, like access to a new market or reduced packaging or shipping costs.
Monitoring and managing sales channels
Just because you’ve built up a diversified portfolio of sales channels and partnerships doesn’t mean you can sit back and relax. You must monitor your channels regularly to see how they are performing and make changes where necessary.
The most important thing is to keep track of your sales numbers so you can identify any problems early on.
It is also important to manage your relationships with partners effectively. You should have regular meetings to discuss performance and set goals, and you should provide feedback on a regular basis.
If there are problems, you should address them immediately. You can keep your sales channels healthy and productive by taking these steps.
Is it helpful to invest in a sales channel manager?
If you plan to sell through multiple channels, hiring someone to manage your sales channels can be helpful.
After all, it’s not like you don’t have a million other things to worry about to keep your business afloat!
Sales managers can be responsible for outbound and inbound recruiting, handling all communications and arrangements between channel partners, and reporting all KPIs and channel health metrics back to you.
If the idea of cold-calling and negotiating with channel partners sounds like a nightmare, a sales channel manager may be a good investment.
Do you have the resources to manage a demand increase?
At its core, a sales channel strategy is an expansion strategy. Through it, you are getting more eyes on your brand and thereby setting up operations for more volume, which means you are moving more products and services.
You are diversifying your sales channels too, so if you want to pursue this strategy, you need to equip yourself to handle all that extra business and activities that support it.
If you don’t have the means or infrastructure necessary to accommodate increased demand, you might want to hold off on leveraging a sales channel strategy for now.
Arm yourself with the best channel management solutions
As you can see, there are a lot of moving parts to consider when crafting a sales channel strategy. SkuVault integrates with your favorite eCommerce solutions, including channel management platforms.
This arsenal of channels includes Channeladvisor, Feedonomics, Zentail, and more. These integrated platforms give you the ability to manage your inventory in one place while keeping an eye on sales, margin, and other essential data.
In addition, SkuVault’s warehouse management system (WMS) can automate and optimize your warehouse operations, giving you more time to focus on other aspects of your business.
With features like pick-to-pack, barcoding, and real-time reporting, SkuVault can help you streamline your operations and improve your bottom line. All that extra functionality also makes it easier to implement a sales channel strategy.
Get in touch
If you’re looking for a comprehensive solution to sales channel management, SkuVault is the answer.
When you’re ready to start, our team is here to help you implement a sales channel strategy to help you grow your business.
Contact us today at (502) 795-5491 to learn more about how SkuVault can help you take control of your inventory and sales data.
We’ll work with you to find a solution for all your channels and help you grow your business. You can also click the link on this page to request a demo and see the platform in action.