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Direct Sales vs Channel Sales – What’s the Difference?

Direct Sales vs Channel Sales – What’s the Difference?

If you’re a business personality who manufactures and produce goods, then you might have how you will sell the product to the consumer. Then I must say, there are two different ways of sales methods — direct sales and channel sales.

Direct sales mainly occur when any company sells its goods to customers without the use of a middleman. Channel sales, on the other side, happen when any company mainly relies on a third party to sell their goods.

Choosing the right channel strategy can help your company to reach its target consumer base and maximize profits.

What is Channel Sales?

Channel sales includes intermediaries who perform as middlemen, selling and distributing products on behalf of the manufacturing company. Such sales are mostly referred to as “indirect sales” as the products are not directly sold off to customers.

In a scenario where Coca-Cola is a manufacturing company that introduces a channel sales strategy. Consumers cannot purchase Coke straightaway from the company’s website; rather, the product must be bought through the medium of third-party vendors which is grocery stores, vending machines, or further sales channels.

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Advantages of Channel Sales

For manufacturing company owners targeting several facets of their business operations, a channel sales strategy can be beneficial. It reduces the requirement for massive investments in sales and distribution, as the company can depend on third-party establishments to allocate its products.

This approach enables the company to deviate its focus towards other important areas, such as product development and other functions. The channel sales model mitigates the encumbrance of selling from the internal team, allowing employees to focus on different aspects of their work.

Moreover, channel sales regulates a prompt growth and expansion of product and service lines. With the sales process foremostly managed by vendors or resellers, the industry has spared the work of creating and training an internal sales force to serve the latest consumers. Such allows the industry to pay more attention to improving the quality of its offerings and elevating revenue.

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Cons of Direct sales

While direct sales are quite appealing as this gives companies complete control over the product life-cycle, there is a major downside: cost as well. Direct sales are expensive in nature, as industries need to cover everything associated with the product.

Companies need to arrange distribution costs, and shipping costs, and they need to maintain a physical store as well as an online store. In addition to that, businesses need to hire and train an internal sales force department.

Furthermore, owners should remember that they’ll need to do this every time they expand the factory or manufacturing company which means adding more products to the product line or expanding into new cities. As a business grows, a channel sales model may be necessary.

What are Channel Sales?

Channel sales involve middlemen who sell and distribute products of the manufacturing company. You can also consider them as“indirect sales” since you’re not selling them to the customers directly.

An example of a manufacturing company that uses partner sales is Coca-Cola. You can’t purchase a Coke from the company’s website. Instead, you have to buy the product through a third-party vendor like a grocery store, a vending machine, or another sales channel.

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Pros of using Channel Sales

If you’re a Manufacturing company owner focused on other parts of your company, a channel sales strategy might be  beneficial. You won’t need to invest much heavily in sales and distribution. Instead, your company needs to find the right third party to distribute your product. 

This will allow your company to focus on other areas of your business, like product development or operations.

The channel sales model takes all the burden of selling from your internal team department and lets employees focus on other areas of work.

Additionally, channel sales even allow industries to expand their product and service lines more quickly. Because the vendor or reseller is mainly handling the sales process, the industry doesn’t have to worry about building up or training an internal sales force to accommodate new consumers.

Instead, the industry can focus its attention on the quality of its goods and services and on growing revenue.

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Cons of Channel Sales

Channel sales might be an attractive sales strategy, but you should consider the big picture first. One of the main problems associated with channel sales is a loss of control.

Manufacturing businesses don’t have as much say over how third-party display or sell their products. A channel manager might help mitigate this risk, but your company has to pay that person a wage, which may increase costs.

Companies must work hard to control the price at which the third-party vendor sells the product. If a third-party vendor arbitrarily inflates a cost, it could impact the price strategy your company’s team chose.

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Another problem with the channel sales model is your company will not be able to see 100% of the profit revenue. When your company enters a partner program, your company has to make concessions.

In all likelihood, this will come in a monetary form. For instance, a potential partner may ask your company for a certain percentage of all the products sold in the store. So, in addition to shipping the goods to the third-party vendor for sale, your company also has to give up a cut of your profit revenue generated during the selling process.

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As a small company owner, choosing the proper sales-deals strategy will go a long way toward bringing in new consumers and boosting revenue.

While the direct sales model actually provides for more personal interaction with its customers, it requires a great good deal of time and effort on the behalf of the industry. On the other hand, utilizing a channel sales model means your company needs to sacrifice its control in exchange for greater reach.

Ultimately, neither model is totally perfect, and company owners need to check the pros and cons before choosing.

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