What is Channel Sales?
Channel sales is the process of distributing a product to the market, typically by segmenting sales operations to focus on different selling channels. With channel sales, you rely on third parties to sell your product or service. That can include resellers, affiliate partners, distributors, value-added providers, independent retailers - basically, anyone who doesn’t work directly for your organization.
Selling your product or service through a network of channel partners can provide great leverage to your business. Different types of channel partners can provide a wide reach for your business and get your product or service in front of many prospective buyers. It is also a very cost-effective way to enter new markets as it spares you the costs of maintaining a local operation.
Advantages of Channel Sales?
- Low sales, marketing and distribution cost: The biggest benefit of using a channel sales model is that the channel partner is already in contact with potential customers for your product by dint of having sold them their own product. Riding on all that, you can reach new customers at a very low initial cost and enter new regions and markets in a cost-effective way.
- For example: let’s say you have invented a new type of high-performance tire for sports cars. You could sell directly to owners of sports cars and keep 100% of the sale. But imagine the difficulty and time and effort needed to reach individual sports car owners. It would be much more efficient to offer your new tire to existing tire companies, who already have customers, such as auto repair shops, tire stores, etc.
- Faster Expansion: If you have an established channel model with the respective revenue sharing, co-marketing, incentives, and other plans, that drastically cut the costs and time involved with expanding your operations, compared to setting up your own outlets.
Disadvantages of Channel Sales?
- Less control over the sales process: While it’s now easier to manage your sales partners, you will have little or no ability to influence the outcome of sales opportunities.
- Lower per-unit profits: Obviously, with new middlemen in place, your raw profits will be lower. However, in a well-managed ecosystem, this should be mitigated by the overall lower costs.
- Not recommended for early-stage startups: As an early-stage startup, you don’t want anyone in between you and your customers. Selling direct is the only way to stay close to your customers, to get invaluable customer feedback, and understand through their eyes what your competition is doing. While you’ll get this information from your channel partner, it will be delayed and second-hand. This lag can result in delayed product iteration which can have a devastating effect on your product roadmap.