Making the best choice for your business.
The term “channel sales” has a few different meanings and variations. Some of the most common names for channel partnerships are distributors, resellers, and VARS. This post will compare two of the most common terms: channel partners and distributors. We’ll explore the difference and help you decide which type of partnership is best suited for your business.
What is a channel partner?
Channel partners are companies that sell products and services on behalf of a company, typically a technology manufacturer or vendor. The technology sold usually includes hardware, software, software as a service (SaaS), or cloud computing solutions.
Channel partners are similar to resellers but have a more in-depth, dual-sided relationship with the parent company. A channel partner program lays out the expectations and benefits of the relationship. The parent or main company makes a significant investment in their partners and is dependant on their success.
When these two companies combine, they expand products and services to become a one-stop-shop, gaining long-term customer commitments. Channel partners require consistent communication, joint marketing efforts, ongoing training on products, and more.
For an example of a classic channel partner relationship, read our interview with Sean Grundy, CEO of Bevi.
What is a distributor?
The difference between distributors and channel partners can get confusing because they are not exactly “opposites.” Instead, a distributor is simply a different type of channel partner. Distributors manage (usually many) relationships with resellers.
They act as a middle-man for a wide variety of products. The end customer benefits from this relationship because one company manages many relationships for them.
A prime example of a distributor relationship is CDW, an established technology reseller. Their sales reps knock on doors and sell computers and accessories to enterprise businesses. When an enterprise business customer wants to purchase 14 Dell laptops, an HP server, and Otterbox phone cases, CDW can fulfill this order through Ingram Micro, a technology distributor with access to hundreds of brands.
Pros of channel sales
- Expansive product offering: Having a wide array of products and services positions you as a one-stop-shop for customers. Expanding your offering enables you to land clients you wouldn’t typically be able to service.
- The latest technology: Your ability to partner with hot new manufacturers gives you a competitive edge, positioning you as progressive and forward-moving in your industry.
- Additional expertise and resources – Utilizing partners grants you access to resources like tech support, product training, marketing budgets, and more.
- Lead generation: Manufacturers (usually those who rely entirely on channel sales) continue to market their products and pass their leads off to their partners.
- Increase in margin: The ability to make more margin will depend on the product and industry, but parter sales often result in discounts and promotions that benefit your bottom line.
- Increase in brand recognition: Smaller companies and firms can ride on the coattails of established, reputable partners. Partners usually see an increase in sales by partnering with well-known brands in their space because they gain some credibility even as a new company.
Cons of channel sales
- Limited control: Channel sales do not allow as much control over the sales process. Your reps may not be able to jump in and take control of situations that may sabotage a deal. You may not be able to push urgency, giving you less control over timelines and sales cycles. Minimal control can lead to frustration and less predictability for revenue.
- Reputation risks: Despite being an external sales team, your partners can negatively impact your brand. Unfortunately, their poor performance can bring down your reputation and have a “guilt by association” effect.
- Less direct feedback: Many businesses rely on customer feedback to improve products and services. When you introduce channel partners as a middle-man, you don’t always get direct feedback. There’s no guarantee your partner will receive and communicate valuable feedback that could aid your growth.
- Channel conflict: Even companies with strong channel relationships face conflicts. These conflicts can arise for various reasons, usually pricing, poor communication, or deals poached by the direct sales team. The most common scenario is two competing partners fighting over one deal or account. If your business model includes direct sales and channel sales, the two groups are prone to “deal poaching.” Deal poaching is when a partner brings a sales opportunity to the parent organization, and the direct sales team takes over the deal, cutting out the middle man.
Bottom line about the differences between channel partners and distributors
Choosing between a classic channel partner model and the distributor route will rely on your industry and business model. Channel sales models are great for software and technology companies who want to expand their product offerings or reputation. Distributors are a subset of channel partners and offer a wide variety of products, often serving as a middle man. By understanding the pros and cons of channel partners and distributors, you can ultimately make the best choice for your brand.
- The Best Metrics to Measure Partner Performance and Engagement - December 2, 2020
- Keeping Channel Partners Aligned With Your Sales and Marketing Team - November 18, 2020
- Allbound Study Uncovers Partner Actions That Lead to Revenue - November 16, 2020