Along with identifying a target audience and developing a product or service, businesses also need to consider how to get their offerings to customers. Direct Sales and Channel Sales each offer unique benefits and drawbacks, making no one method objectively better than the other. However, given your company’s particular goals and limitations, you may determine that one method is ultimately the better fit.
Direct Sales – Quick Overview of the Pros and Cons
As might be inferred from the name, Direct Sales involves a company selling its products “directly” to its customer base.
The Pros of Direct Sales
• Training and knowledge sharing may be more effective. A full-time salesperson has one job — to sell your products. They will undoubtedly take the necessary time to meet with various in-house teams and familiarize themselves with the features in order to reflect your brand accurately. The same can’t be said for all channel partners.
• Direct contact with customers. Direct Sales give businesses a straight line of communication with their end-user. Through customer interactions, your sales and marketing teams can glean direct insight into your target audience’s needs and feedback. Additionally, it is easier to manage your brand’s image and maintain a consistent customer experience under this model.
• No needs to share the profits. Though internal sales professionals will most likely receive a combination of a salary and commission, this could be less than the profits you’d share with a successful channel partner.
The Cons of Direct Sales
• Higher marketing and sales costs. Handling everything in-house comes with costs. While Channel Sales passes along some of its personnel and marketing expenses to its partners, Direct Sales bears these costs before making its first sale.
• Slower growth and upfront costs. If you have the appropriate infrastructure in place, there’s nothing preventing you from adding 100 new channel partners as soon as tomorrow. This isn’t the same for salaried sales personnel.
Channel Sales – Quick Overview of the Pros and Cons
With a channel sales strategy (also known as indirect sales), a company promots its products through a third-party partner. Examples include distributors, retailers, wholesalers, or value-added resellers (VAR).
The Pros of Channel Sales
• Less upfront investment for scalable growth. You create targeted materials, hire a partner manager, and build a partner portal, but that’s where your initial spending ends. Partners traditionally receive commission rather than salaries, meaning that individuals only “cost” you as they simultaneously increase your profits.
• The opportunity to build credibility by leveraging partners’ brand equity. The option to leverage a partner’s existing connections is particularly helpful when entering new regions or business verticals. Partners can also lend their perspective to further refine your promotional messaging.
• The option to split marketing and promotional costs. Joint-marketing efforts mean that you and partners pool your individual budgets to make an overall greater impact. This lets you stretch your marketing dollars further and take risks with less financial consequences.
The Cons of Channel Sales
• Less control over the sales process and brand representation. Simply put, you’re putting faith into an outsider to accurately present your product. If a partner chooses to go off-script or make a questionable decision, you may never know. However, your business can employ a channel manager and systemize learnings within PRM software to mitigate these risks.
• Partners receive a cut of proceeds. While channel partners can reduce up-front business costs, they take a percentage of revenue in return for selling your product.
• Higher risk of a disconnect between Sales and Marketing. Your various teams must share information and brainstorm strategies; individually, they hold unique pieces to the puzzle but no one sees the full picture on their own. Many companies struggle to bridge the gap between Marketing and their channel partners simply because of a lack of communication.
For this reason, it’s crucial that the partner manager collect key program engagement KPIs, as well as serve as a vocal advocate for channel sales within the organization.
Direct Sales vs. Channel Sales – Which One Wins?
In the battle of Direct Sales vs. Channel Sales, there’s no clear champion. Rather, consider which option helps achieve your particular goals.
• If you want early gains without substantially growing payroll costs: Channel Sales. A single partner manager can handle multiple relationships (and this number grows exponentially when you utilize a PRM tool).
• To grow rapidly or in a new direction with little risk: Channel Sales. To reiterate an important point about Channel Sales, you don’t pay individuals. Rather, you split generated profits with them. If a partner fails to deliver, they cost you nothing. Comparatively, if a sales person doesn’t meet your expectations, you wasted significant time and money in their initial ramp up.
• If you want maximum control over your brand voice: Direct Sales. A robust PRM will let you control which materials can be co-branded, as well as suggest which materials to use throughout the sales funnel. However, just because you arm partners with the right content doesn’t guarantee it’ll be correctly utilized each and every time.
Fortunately, one doesn’t need to choose one over the other. By carefully considering the benefits and drawbacks of each approach — along with the market, your product, and your company’s financial situation — your business can boost profits through a mix of both methods.
How Direct Sales and Channel Sales Can Help One Another
Companies should leverage the pros and cons of each approach to balance the limitations of the individual sales models. For example:
• Channel sales can make strong introductions to untapped markets for Direct Sales to later leverage. Well-established partners can elevate the vendor’s brand name through joint marketing efforts, such as co-branded materials, shared vendor booths, and co-hosted webinars. This builds brand equity amongst their audiences, helping both Channel and Direct sales achieve their goals.
• Channel Sales can help generate buzz for new products. Even your most talented Direct Sales Director will find it hard to rival the combined influence of hundreds of channel partners. When your company unveils an exciting new offering, your partners can blow their social media trumpets and talk it up amongst their customers to help make a big splash.
• Direct Sales can test playbooks and strategies to share with partners. Allbound’s Channel Insights feature lets you merge engagement data with deal registrations to quantify the effectiveness of the documents. However, this is no substitute for qualitative insights from your own team.
Direct Sales personnel can provide firsthand knowledge of how prospects reacted to materials, common follow-up questions, and the stage at which the messaging was best received. These insights can ultimately shape your channel sales playbooks so you properly equip partners.
Curious About How to Get Your Channel Program Off the Ground?
To learn more about how to establish a channel partner program to supplement your direct sales, consider reading one of the following:
- 16 Partner Program KPIs to Measure Channel Performance - September 18, 2022
- Announcing our $43M majority investment: a letter from the CEO - July 25, 2022
- 9 Steps to Creating a SPIFF Program to Incentivize Channel Partners - January 11, 2022