Direct Sales vs Channel Sales

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Direct Sales vs Channel Sales

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Businesses have one main goal: to get customers to purchase their product or service. That’s not a new or complicated idea. It’s how businesses have always worked. Where it does get complicated is when you start thinking about the best way to accomplish this goal.

Some organizations focus on direct sales. These companies build out large, in-house sales teams and hire a bunch of sales reps that just hustle all day long. 

Other organizations choose to work with channel partners. Instead of selling straight to the customer, they go through some sort of middleman like a distributor or value-added reseller. Both models have their pros and cons, so we’ve put together this quick guide to help you decide which option is right for your organization. 

What is Direct Sales?

Direct sales is all about selling the product directly to the customer. It is the shortest distance between the organization and the consumer. No middleman. No retailer. Nothing. The organization that creates the product also handles the entire sales cycle. That means hiring and managing a sales team, developing the sales strategy, and overseeing all other elements of an in-house undertaking like this.

In the modern world of sales, organizations have multiple opportunities for direct sales. Reps close deals through in-person meetings, demos, emails, video conferences, phone calls, and more. 

Digital marketing and ecommerce tools have also widened the net for direct sales. Anyone can make a website and sell their products directly to the public. Some tools even enable users to automate their digital sales process, making it even easier to sell directly to their customer base. 

Pros of Direct Sales

Using direct sales has a lot of potential upsides including increased control, opportunity for feedback, getting the full price, and less stress to find the right partners. 

Increased Control: Doing anything in-house will always give the organization more control over the whole sales process. The organization’s sales manager manages the pipeline and oversees hiring, strategy, onboarding, customer etiquette, and anything else that may come up. 

Opportunity for Direct Feedback: Selling direct makes it easier to receive feedback from customers because your team is actually engaging with the customers. Having these contacts and relationships can also make it easier for an organization to get responses from surveys or other feedback content because the customer actually has dealt with that team before.

Getting the Full Price: Organizations who work with resellers or other channel partners often end up selling their products at a discounted rate. In some cases, those rates are even set by the partnering organization not the one with the product. Direct sales allows the organization to set the price they believe is right and gives them power over the discounts they decide to offer. 

Less Stress from Finding the Right Partners: Finding the right channel partners can take quite a bit of time and effort. With the control offered by direct sales, organizations can spend less time searching and more time selling.

Cons of Direct Sales

No sales plan is perfect. Direct sales is no exception. While various pros do exist, companies need to understand some of the drawbacks to direct sales as well such as the higher cost involved, the challenges around scalability, and overcoming the obstacles for entering new markets.

Higher Cost: As with nearly everything else in business, outsourcing sales is just cheaper than doing it all in-house. Direct sales doesn’t allow you to do this. Instead, you have to hire reps, managers, directors, and executives. You have to invest in digital resources for your team. You have to cover training and onboarding and all the other complexities that go into managing a team of people. That all costs money, but it costs time, effort, and emotional capital as well.

Challenges to Scale: If starting a team is the biggest challenge, scaling one comes in second. Taking your team to that next level is no small ask. It’s like saying “oh, I ran a 5k, so I guess I can do a marathon now.” You may have the core built up well, but you’ve still got a ton of work to do. All the obstacles that leaders overcame at the start just come back around with new additions – more reps to train, more administrative frustrations, and more people to manage. 

New Market Obstacles: Entering a new market requires a thoughtful strategy and dedicated team. That team either needs to live in the area – which could mean additional office space – or they need to get there often – which means increased travel expenses. Either option leads to higher spending and increased logistical planning.

Of course, tons of organizations overcome these challenges with their direct sales, but many others have developed some channel sales strategy as a way to move their company forward while avoiding such obstacles.

What is Channel Sales?

Channels sales work in the opposite way of direct sales. Instead of going straight to the consumer, organizations go through third party vendors like distributors, resellers, or other partners. These sales organizations then function as a middleman between the company that made the product and the consumer. In this way, you might think of a well developed channel sales strategy as one that leads to indirect sales.

You can think of this with most large companies. A small business may be able to get by with selling directly to the consumer, but imagine for a second all that it would take for Google to sell all of their offerings directly to their target markets. They’d have to hire thousands of reps and manage a ton of different workflows. 

That’s why Google and many other companies opt for channel sales. Google sells their solutions at a discount to the channel partner and the partner gets the product to the consumer. If you’ve ever purchased a Squarespace site, for instance, you’d know that you also receive a Gsuite subscription. You never talk to a sales rep at Google. You just deal with their channel partner: Squarespace.

Types of Channel Sales Partners

Channel sales partners come in various forms. We’ll highlight some of the most common choices for B2B companies.

Resellers – A reseller works kind of like a retail store. They purchase your product at a discounted rate and sell it with nothing added.

Affiliate partners – An affiliate partner promotes your product in some way – maybe through a website, blog, or another marketing effort – and directs the customer to your website or store so they can make a purchase. Usually, the affiliate receives commission when a customer makes a purchase on the product they promote.

Distributors – The organization sells the product to a distributor who then finds customers of their own that they distribute to.

Wholesalers – Organizations may also just jump over the distributor and sell directly to a wholesaler that would then sell the product to their customers.

Value-added provider – A value added provider or value-added reseller is a business that purchases a product from other companies – usually within the IT industry – and adds value by bundling it with additional products or for the purpose of reselling.

Independent retailers – These are smaller retailers not associated without connection to an established brand.

Dealers – A dealer faces the consumer directly and sells the product produced by the organization.

Agents – Agents do not have ownership of the product but do engage with the end-user on behalf of the organization. 

Consultants – Consultants might serve as  sales partners, especially for software products, because they can encourage their clients to use certain products that come from the partnering organization.

Pros of Channel Sales

There are plenty of reasons why both smaller and larger organizations choose to develop a channel sales strategy. Some of the pros include reduced sales, marketing, and distribution costs, an increased chance at scaling, and a less expensive way to enter new markets.

Reducing Sales, Marketing, and Distribution Costs: Working with a channel sales partner allows your organization to hand over the reigns of sales, marketing, and distribution to another trustworth company that specializes in those fields. This can not only lead to better results in the end; it can save the organization a ton of money at the start because they won’t have to go through all the expenses that come from a full blown sales operation. 

Increased Chance at Scaling: The best part about channel sales is that you can always add more channel partners. Once an organization has a model in place with a strong channel manager and proven strategy, all they have to do is add more partners into the mix. What worked in one channel will very possibly work in another even a few adjustments need to happen for the contexts. Combining the two could double your results without doubling your efforts. 

Less Expensive Market Expansion: The channel sales model can help improve business development as organizations team up with partners local to the area. This entrypoint becomes a cost efficient way to establish a presence in the new market without taking on any huge risks like leasing office space, hiring local talent, or creating context-specific advertisements.

Cons of Channel Sales

While many organizations can defend their decision to follow the channel sales model, others have valid concerns that should not go unnoticed. Those companies considering whether or not channel sales is right for them should prepare themselves for a lack of control, fewer revenue predictions, and more partner discounts. 

Lack of Control: Allowing another company to manage your entire sales cycle sounds nice when it comes to the cost and headaches associated with overseeing such a process. But giving up control like that can also mean giving up control on how your product gets sold. There’s now someone standing between you and your end user or customer. Sure, that person is your partner, but that does not mean you get to tell them what to do. They are going to do their thing. You just have to let go and trust them.

Fewer Revenue Predictions: The lack of control extends into making predictions as well. Many channel partners will not let the other organization see the whole pipeline. After all, they don’t partner with just one company, and they’ve got a business to protect, too. This makes it difficult for the partnering organization to predict revenue because they cannot see where their customers are in their sales journeys. Organizations, in some cases, can at least offset this by increasing their partner pool and creating a larger pipeline. 

More Partner Discounts: Partners will rarely pay full price for your product. If they did, they’d cease to exist. Instead, they receive the organization’s product at a discounted rate so that they can get a reasonable profit on their end as well. For the main organization, this means potentially losing out on higher profits. Many see this as a necessary risk in the long run, but others see this as a red flag for channel sales. 

Overall, the channel sales model has some flaws, all of which can be overcome with a little bit of hardwork and strategy. It ultimately comes down to the organization’s desires: do you want more efficiency or control? That’s the biggest question.

What are the differences between Direct Sales and Channel Sales?

The biggest differences between direct sales and channel sales all come down to control. In direct sales, your organization owns the reps’ workflows and their day to day activities. If you need them in the CRM, they’ll get in the CRM. Channel partners, however, don’t work this way. No matter how much you try to change, they reserve the right to have their own workflows and their own priorities. 

This can become really frustrating for leaders because you can’t use the same technology to assign leads to inside sales reps and channel partners. Doing so would require them both to be in your CRM or partner portal and channel partners use their own. That’s why leaders need to consider the right sales stack for their teams to use.

How to Build a Sales Stack for Direct Sales

Like any modern sales process, optimizing direct sales means utilizing a great tech stack. Sales leaders need to make sure that they’re getting the most out of their resources.

Best Practices and Things to Consider

1. Use a great CRM.

A customer relationship management tool will be the backbone of your sales operations. They help your team stay organized by keeping all your contacts in one place and enabling them to monitor their progress so they can achieve their goals.

Here are some of the top CRMs on the market:

  • Hubspot CRM
  • Salesforce
  • netSuite
  • Pipedrive

2. Easily schedule meetings.

Having an app dedicated to booking meetings will make it easier for prospects to schedule time with your reps. Sending emails back and forth trying to find time will get frustrating, so it’s best to find a tool that someone can book directly onto your reps’ calendars.

Scheduling apps include:

  • Calendly
  • Hubspot’s meeting tool
  • Appointy
  • Setmore

3. Have demos ready.

If you sell software or a digital application of some sort, your prospects will want to see your product in action before they make any decisions. Some people choose to give live demos. Others pre-record them. Either way, you will want a tool that makes it easy for your team to produce a solid demo so you can put your best foot forward.

Some good demo tools:

  • Prezi
  • Zoom
  • Adobe captivate

4. Keep communication going.

Communication is one of the most overlooked necessities in many organizations, especially when it comes to sales teams. A lot of the time, reps can just get lost in their own world, but everything goes more smoothly when team members talk to each other. 

Here are some awesome communication tools:

  • Slack
  • Microsoft teams
  • Basecamp

How to Build a Sales Stack for Channel Sales

The sales stack necessary for channel sales success will look way different than one for an internal team. Still, any successful partner program will require a few tools if you want to get the most out of those partner relationships.

Best Practices and Things to Consider

1. Utilize a PRM Tool

Like a CRM for a direct sales strategy, a partner relationship management (PRM) tool functions as the backbone for channel sales. You want to make the most out of your partner relationships, and a PRM allows you to manage your contacts and stay on top of those relationships.

2. Easily integrate with the partner’s tech stack.

Since you won’t be able to control the partner’s tech stack, the least you can do is integrate with their existing tools. Doing so allows you to input your data into their workflows, reducing the amount of information that slips through the cracks.

3. Control lead assignment, distribution, and management.

This might be the most crucial element of a successful channel sales strategy. Too often, organizations just treat every lead like they’re the same, sending them to just any channel partner. If your organization can ensure that the right leads are going to the right sales channel every time, you’ll see a lot more success. Each channel meets specific customer needs, and sending them the leads with those needs will help them succeed (no rhyme intended, but hey, it works, right?)

How to Improve Channel Sales

A successful channel sales strategy can lead to more sales with less effort than managing a gigantic sales team. But to reach this level of success, organizations must be able to consistently match the right lead with the right channel partner at the right time. Calculate how much more Revenue Opportunity you can generate from your marketing leads by implementing lead management.

That’s what Lead Assign was created to do. Our lead management platform utilizes AI-based lead scoring and routing to distribute leads to the most qualified channel partner for that deal. The real-time solution offers simple integration with multiple CRMs so you can get the visibility and data you need without adding any more software. Eliminate the waiting period for your leads by texting or emailing their info to the right partner within minutes of their engagement. See your potential success with the Power of Automation.

If you want to hear more about how Lead Assign can help your channel partners sell more and close faster, we’d love to talk with you. Schedule a demo with one of our specialists to get started.

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