Channel sales partners who are already selling your type of product or service into your target markets can provide critical access to a large universe of potential customers.
Channel sales (channel) and direct sales (direct): What’s the difference? Quite simply, channel sales are selling through a third-party intermediate company, whereas direct sales is selling direct to a customer base, without third-party involvement. According to firstname.lastname@example.org; people say that the shortest distance between two points is a straight line, the direct route, and so direct sales is the conventional approach of selling directly to your customer and cutting out the middleman.
Cutting out the middleman sounds like a good idea at first. Selling directly means that you keep all of the profit; no one is taking a chunk out of your sales. However, an effective sales strategy must be aligned with how and where your customers want to buy, and in many cases this is through a channel-intermediate-third party company. Each organization, like each customer, is unique and classifying channel sales organizations is a tricky business.
However, the unique needs and capabilities of each organization are the operating realities, not the theoretical concept of channels. Each organization evolves and changes in a never-ending competitive search for more revenue, increased profits, and more security. In today’s complex world, you face greater challenges than ever before and managing the relationships with sales channels can be chaotic, unpredictable, uncertain… but, in many cases, it’s absolutely necessary and extremely rewarding…
According to the ‘Channel Management Best Practices and Channel Management Strategy Study’: When sales executives were asked which components were most important for a channel program to be successful, respondents identified; choosing the right partner was the most popular answer, followed by route-to-market and innovation, enabling partner success, relationship ROI, production and consistency in policies, programs, message and information, as important aspects.
Just over half of companies surveyed said that they or their channel partners are actively using social media outlets as part of their channel management marketing strategies… When asked to identify the single biggest challenge in channel marketing efforts, aside from budget and resources, more than three-quarters of respondents cited; the pressure to maintain and increase sales revenue. Direct competition between internal sales and resellers was also mentioned, as well as, keeping a pragmatic view of channel partners.
In the article “Channel Sales is Quite Simply, Selling Through Others” by Mark Von Rosing writes: Channel Sales, in simple terms, is selling products or services indirectly through others: Agents, brokers, dealers, distributors, partners, resellers, retailers, and other similar names are used to describe various indirect types of relationships.
In fact, selling through channels is a mainstay of today’s software business and a large portion of the telecommunications industries sales efforts for the past several decades. The key justification for channels is greater efficiency:
- Channel partner is already selling to the ‘target market’.
- Channel partner is already a ‘trusted advisor’.
- Channel partner is ‘pay for performance’.
In the article “Channel Sales– Making it Work for You” by Marc Winitz writes: Channel sales can represent a confusing maze for those new to establishing new sales channels. Stated simply, a channel is a way to achieve distribution for a product or service through a third-party sales force. By implementing a channel strategy you eliminate some of the costs associated with having your own direct sales team.
You also give up some amount of margin associated with the revenue generated by selling your product through this type of distribution, in the form of compensation to the channel. Also, whether you realize it or not, you give away a measure of control of the selling process by working through a channel.
Counter to many beliefs, an effective channel strategy is not: I’ll sign this deal and give up X% of my margin and the sales will start rolling in. There are lots of dead channel strategies littering the sales distribution highway with that mentality. Channels are no different from any other business initiative, which takes; commitment, planning, investment, and hard & smart work to make them successful.
In the article “The Fallacy of Channels: Startups Beware” by Mark Suster writes: Most channel relationships don’t work: Period. Channel partners come in multiple flavors: The favorite of many Silicon Valley startups is the ‘big tech company’ distribution scenario. For example, target and sign-up large companies, such as; Salesforce, Intuit, Google, eBay, Verizon… or, the more old school deals with large value-added-resellers, e.g., HP, IBM, Oracle… or, the big consulting companies, e.g., Deloitte & Touche, Ernst & Young, KPMG, PwC…
It’s a perfect love story: I got the brains, you got the looks, let’s make lots of money. Except that most of these deals end-up going in the waste bucket. Here’s the problem: If you haven’t already sold enough of your product directly, to have enough volume to satisfy your channel partner, they simply are not interested. So should I avoid channels at all costs? No: Not necessarily. I say that channels can be the lifeblood of a company, but 80% fail the channel test.
Companies understand how to ink the deal, but not what makes their channel partner tick. They end up being penny wise, pound foolish. They blame their partners for not selling, rather than recognize the channel partner for what it is. You must work hard and smart to make the channel partner successful, than it will pay big dividends when your business is ready to seriously hit that ‘j curve’…
In the article “Is It Time to Change the Channel?” by Robert J. Weese writes: Many sales organizations today believe that it’s time to change to sales channel. They have found that by creating an alternate distribution channel, in concert with their existing direct sales force, they can create a lower cost and more effective sales model. The alternate sales channel, when managed correctly, can be a ‘win-win-win’; for the manufacturer of the product or service, for the sales channel organization who provides local representation, and for the consumer.
When using this coverage model, the manufacturer increases revenue and market share in a previously untapped market and does so with relatively little risk or financial investment. The channel partner sees the relationship as a way to diversify their product line and increase their own revenues.
More important, the customer satisfaction increases, as the customer now sees a local business that will not only sell the product, but will also provide ongoing local customer support. Also, customer retention and repeat sales improves, since the customer has already brought into this successful business model. Creating and implementing an alternate sales channel can be a successful and revenue-producing strategy.
In the article “Channel Marketing Strategy: Seven Steps for 21st-Century Success” by Heather Clancy writes: The rise of social media networks and sophisticated digital marketing platforms has rewritten the channel marketing strategy rules, even for technology solution providers that still haven’t created a formal channel marketing plan. Increasingly, customers are shaping their opinions about their various technology options long before a product, services company ever makes contact with a decision-maker.
“If you look at how customers are buying, three-fifths of the buying cycle occurs before the prospect is even contacted,” said Jim Bindon. If your company is ready to get serious about its channel marketing strategy, here are seven best practices to consider:
- Don’t spread yourself too thin.
- Formalize channel marketing process and measure results.
- Focus on your brand not vendors.
- Put the customer first.
- Make every employee a brand ambassador.
- Be sincere on social media.
- When in doubt, keep it local.
Channel sales are extremely successful business models. The channel gives powerful leverage to an organization, adding additional sales resources and taking advantage of
existing customer relationships that the channel partners bring to the table. Given the right channel, the right people, good product/ market fit, and a lot of patience, the channel sales model can be one of the most profitable business models.
A strong channel sales network has the capacity to generate increasing amounts of revenue without the vendor having to do all of the heavy lifting. But, creating a successful channel sales program is not as simple as just signing with partners. According to the ‘Association for Strategic Alliance Professionals’; 40% of all revenues for the top 1000 companies in the U.S. are derived through channel sales, but 60% of all channel partnerships deteriorate or collapse because of lack of communication.
Regardless of the steps, vendors should never take their channel for granted and should always lend a close ear to what is happening among their partners. A few common mistakes made with channel sales are: expecting new products to fit into existing channels; choosing a channel that does not fit your customer profile; treating all of your partners the same; absence of a full-time and experienced channel manager. In an economy that continues to be challenged, it’s more important than ever for companies to take hard look at effectiveness of their channel programs, and insure that the program is; well-planned, flexible, incentives are based on actionable and timely data, and ‘win-win’–drives sales and increase partner loyalty.
Building a sales channel isn’t easy, nor is it a fast process, and the lynch-pin that makes it work is effective channel management. Channel management is about influencing channel partners on how they develop, manage and optimize sales opportunities, while also influencing and leading company change initiatives and investments that drive indirect channel revenue.
Service your channel sales partners as you would service your best customers, and work with them to drive revenue.