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Channel Sales – Definition, Pros and Cons, Strategy

Every company, whenever they launch a new product they have this question – How to get a new product in front of customers and grow revenue? Some of the options available are hiring new sales reps and investing in tools that will boost their efficiency. Another potential strategy is channel selling.

Channel sales definition

Channel sales are also known as partner sales. It is the indirect sales channel that a business-to-business (B2B) sales company uses to go to market. Partners in channel sales play various roles in different types of engagements. Depending on the industry, channel partners may be involved in aggregating, delivering, administrating and contributing to the solution. In other words, channel partners are sales-related partners who don’t work directly for your company.

Who is a sales channel partner?

A channel partner is an entity that has a long, mid, or short-term relationship with your company to sell your product. For a company channel partners works as an extension of your sales team and can help increase your sales and customer loyalty. Below are the examples of sales channel partners you may cooperate with:

  • Resellers
  • Distributors
  • Affiliate partners
  • Value-added providers
  • Dealers
  • Consultants
  • Wholesalers
  • Independent retailers
  • Agents

Channel sales vs. direct sales

To advertise a product of a company, channel sales require a third party to advertise on their platforms, whereas direct selling doesn’t need any middlemen. Deals can be managed online, e.g., via personal arrangements.

Companies manage channel selling outside their doors. Whereas, direct sales presuppose that the company should develop and manage a sales team. The latter is to operate as a single entity and be close to the target market. So, if an organization wants to sell to multiple markets, it will need to have teams locally to control the sales process.

Pros and cons of channel sales

Channel sales are one of the top-selling models for all-size companies, and not without reason. For organizations, they offer many benefits to businesses interested in constant growth. And there are also some impediments your company should consider before choosing this approach to selling. Let’s discover both.

Channel sales pros

Considerably low marketing and sales cost – A channel sales partner is normally reliable and trusted by their audience and already advertises their product to customers. Due to this, you can reach new customers at less cost. In addition, if you decide to explore new markets, you’ll be able to do it more cost-effectively. 

Higher efficiency –  It’s usually easier to build a new channel sales partnership than to hire new salespeople. Besides, a channel sales manager coworking with several partners and adding new ones into the mix can bring a company the same revenue as five or six salespeople in a much cheaper way.

Brand awareness – A company with channel sales has high opportunities to be noticed by a wider audience, who might want to know about their brand a little bit more.

Customer Success – For a company, new customers need onboarding and training, and you can delegate these services to your channel sales partners who already offer them. As a result, you will be able to simultaneously concentrate and focus more on your existing customers and close new ones through your sales channels.

Easier Scaling – Expertise is required while scaling a business which is one of the biggest obstacles owners have to face. Restrictions have been held on how much you can optimize current lead generation approaches, and expanding into new markets which requires a lot of planning and resources. Catching up with the channel sales, you can keep away from as many of the obstacles that go with scaling your business, transfering the bulk portion of the work to third-party partners who will create sales for you. 

Instilled Trust – When there are a diverse range of channels, entering a new market is not serene. Mostly when you’re a startup or a least popular business. Hopefully, there’s a way to dodge that problem entirely by supporting the authority and reliance of a partner you work with as a sales channel.

Once someone uses a sales channel that has a powerful esteem in a subsequent market, you can make the sales much simplified and reduce obstacles by utilizing that reputation to your advantage. 

Minimize the Cost – In order to expand your network, one of the major priorities for any business is to increase the lifetime importance of a customer while also reducing the cost of acquiring them. 

A channel sale might have to compensate the third-party generating the sale, still it could turn out to be the most profitable and cost-effective way of generating sales.

Channel sales cons

Loss of control over the sales process – In channel sales, neither your salespeople nor you can directly interfere with the sales process. So it’s challenging to predict your revenue and assess your KPI.

No flexibility – Working with an external group of intermediaries, you will find it quite challenging to message any updates concerning your product to them. Adding a new feature to the product and asking them to change their selling strategy on the go will also be difficult.

The risk for the company – You must be double sure you cooperate with a reputable partner. Otherwise, it’s a risk for you to tarnish your image as well.

Imprecise customer feedback – Since you do not have much idea how your channel sales partner gathers feedback from customers, there can is little chance you will get 100% adequate responses and it will take a longer time for you to get them. 

Need to Share Revenue – After a hefty workflow, one of the disadvantages of channel sales is having to share your profits with a third party. Even though you generate sales on your own, you get to keep all of the profits after the customer acquisition cost, but in case of channel sales, additional expenses also require to be offered depending on the type of arrangement you’ve achieved. 

Which could not be that big a problem if a partner can provide you the opportunity to scale. 

Hassle in Reliability – While using channel sales, some might underperform or turn out to be absolutely unreliable which makes managing partners a hassle. It requires time to develop methods and guidelines that could work in the given situation. But still as you generate more data, you can understand what to seek for based on the ones that are performing great. 

Least Customer Insights – It is necessary to gain more insights as much as you can about your customers. 

In case when the sales team won’t be able to make direct conversations with prompt customers,there can be a situation where you will miss out on some of the information you could have had when interacting with the customer.

Pros

  • Greater efficiency
  • Brand awareness
  • Customer Success
  • Considerable low sales cost and marketing

Cons

  • Risk for the company
  • Imprecise customer feedback
  • No flexibility
  • Loss of control over the sales process
Channel Sales Pro and Cons

Take Away

For a sales strategy, a channel sales partnership isn’t the only perfect way and it has both advantages and disadvantages. Thus, before taking the final call on whether to implement this model into your sales process, consider your company’s growth level, and your product’s success in the market, and define your goals.

Channel sales partnerships empower you to expand your market through the loyalty your intermediaries have already built with their clients. If you go with authoritative partners and cooperate on conditions that you will not directly, but still manage the sales process. Good luck!