The Channel Sales vs. Direct Sales debate is one that has run hot and cold in the retail industry for many years. Many people believe that the Channel Sales model is the only way to go for the experienced sales rep, and they’ll argue that the Direct Sales model is a “get rich scheme” that only the rookie sales rep should participate in. Rather than regurgitating the arguments for each model, this post is meant to be a guide on how to approach the Direct Sales and Channel Sales options, and make the best decision for your business.
One of the most common sales questions we get is: “Which sales technique do I use?” In this post, I will examine both Direct Sales and Channel Sales channels and explain how they are different and how they work for the sales rep and the company.
The channel sales approach has been around for a while. But recently, direct sales of home-based business opportunities have grown in popularity. This is because sales of direct sales are more customer-centric than a channel sales approach. In a channel sales approach, it’s the sales rep’s responsibility to establish the right customers and the right offers to help generate sales. In a direct sales approach, the sales rep is charged with generating sales on their own, which means they need to have a more detailed understanding of their prospects and needs to make it happen.
The argument over channel vs. direct sales has raged for years, so I’ll lay out the benefits and drawbacks of both, as well as how to balance the two in your sales approach.
The best balance of direct and indirect sales channels relies a lot on the product or service you’re selling.
In this article, we’ll take a deeper look at each sales channel and ask some questions to help you determine whether it’s the appropriate channel for your company right now.
Contents Table of Contents
What Are Channel Sales and How Do They Work?
The method of delivering a product to the market, usually by segmenting sales activities to concentrate on various selling channels, is known as channel sales. A business may utilize a channel sales strategy to sell a product via internal sales teams, dealers, merchants, affiliates, or direct marketing, for example.
Any kind of third-party that sells your goods or service to the final consumer is considered a channel. Selling your product or service via a network of channel partners may provide your company a significant competitive advantage.
Re-sellers, distributors, value-added providers, and other kinds of channel partners may extend your company’s reach and expose your product or service to a large number of potential customers.
It’s also a highly cost-effective method to get into new markets since you’re not paying for a local operation.
Dissecting the Sales Process
There are two major sales channels: direct and indirect, at a high level.
You may have various income sources within these major channels:
In this part, we’ll look through indirect channel sales, then direct channel sales, and finally the benefits and drawbacks of each.
The Four Distribution Channels
The four channels of distribution in channel sales differ based on how the product travels from the producer to the customer. The fourth sales channel, on the other hand, adds a new benefit.
1. The Channel of Direct Distribution
The direct channel is also known as the zero-level channel of distribution by certain salespeople. It entails producers selling a product directly to customers. The vendor does not have a set location where they sell to the public.
The direct route is used in today’s world via online distribution, party planning, and face-to-face protests. Salespeople are on hand to show how to utilize a product and sell it straight to the customer.
This sales channel is mostly used by manufacturers of perishable products. Direct distribution methods are also used by those with costly products or an audience focused in a certain geographic area.
2. Using Intermediaries to Sell
This is an indirect distribution channel in which a third party acts as a middleman and sells a manufacturer’s goods to the customer.
There are three kinds of indirect channels: one-level, two-level, and three-level channels.
Channels with just one level:
The product passes via these channels from the producer to the retailer, who then sells it to the customer. If you’re a retailer of shopping items like clothing, toys, or furniture, a one-level channel can help you reach more consumers and increase your revenues.
Channels with two levels:
Products go from a manufacturer to a wholesaler, who then sells them to a retailer via this channel. The goods is subsequently sold to customers by the store.
A wholesaler will purchase a product in bulk, repackage it into smaller containers, and sell it to a retailer, who will then distribute it to customers. A two-level distribution system is ideal for selling inexpensive and long-lasting goods.
Channels with three levels:
The three-level channel is used when a manufacturer, sales agent, wholesaler, and retailer are engaged before customers get the goods.
When products need to move quickly after an order is placed, the sales agent plays an essential role in the sales process. When there is a large demand for a product or service, and the customers are not all in one place, this sales channel becomes essential.
3. Distribution in two ways
Dual distribution refers to when a producer or wholesaler uses more than one sales channel to deliver a product to a customer at the same time.
The producer or distributor may establish a showroom to promote a product while still attracting customers via online channels. Consumers of the same product offered in the showroom and on the internet will be sought by other merchants.
Computer makers and distributors that sell computers in various locations, including wholesale and retail, as well as online platforms, should utilize dual distribution.
4. Channel Reversal
There is a flow in how products travel through indirect routes and dual distribution. The producer, intermediaries for indirect and dual distribution channels, and the customer are all involved in the production of the products.
The sales procedure for reverse channels does not follow this sequence. This is due to the fact that technology has changed sales by allowing for product resale and recycling.
A salesman buys a product and thinks of ways to earn extra money by recycling it, such as turning a water bottle into a flower bed. The individual who recycles and resells the goods is the one who benefits from the transaction.
What Are Direct Sales and How Do They Work?
Selling directly to customers away from a fixed business or physical location is known as direct sales. Deals may be completed through personal arrangements, in-person demonstrations, and, of course, internet direct sales in today’s contemporary age of direct selling.
A direct sales channel necessitates the formation and management of a sales team. If you intend to sell in numerous areas, you’ll almost certainly require local sales teams, which will add to the cost and administrative overhead.
There are three different types of direct sales.
Distributors offer a product directly to customers via direct selling. There are three different types:
1. Sale of Party Packages
A sales agent or distributor invites a group of prospective clients to a party or meeting as part of a party plan sale. Here, the salesperson will go into adequate depth regarding the product.
A demonstration of how the product works and its advantages will be given. Attendees will be given supporting materials such as flyers with additional information. The sales agent will accept orders after he has persuaded the prospective clients.
The challenge is to engage a group of people without having to explain how a product works to each prospective buyer. In a single meeting, more units of the product being offered will be purchased. As you having fun, you strike many birds with one stone.
2. Sale on a single level
A sales representative in single-level sales contacts individuals one by one. As you convince prospective consumers to invest in the product you’re providing, you’ll speak with them face to face.
You conduct single-level direct marketing when you have a product that you are selling from one door to the next.
You need a customized direct sales strategy for each prospect you contact in order to convert them into a client.
3. Sale on several levels
A business will examine several sales representatives for multi-level selling and choose the one with the best credentials. This sales representative will be in charge of selling goods made by the business in question. In other instances, multi-level direct sales will be handled by business partners.
Multi-level sales, where sales are conducted via product catalogs, may also benefit from online platforms. In this kind of direct selling, social networking platforms are also useful.
Is it true that direct sales is a pyramid scheme?
Direct sales is not a pyramid system, despite what some people believe.
Allow me to explain.
A pyramid scheme has a hierarchy, with the newest members at the bottom of the pyramid generating returns for those at the top.
Instead of selling a commodity, this plan operates by having individuals enroll others under them to make money. This implies that in order to earn money, you must recruit individuals to work for you rather than selling a commodity.
Recruiting new individuals is more essential to a pyramid scheme than interacting with customers and selling a product.
Direct sales, on the other hand, demand you to sell a product to a customer in order to profit. To sell the goods, you don’t need a fixed physical location or a pyramid of sales representatives under you.
In direct sales, a sales staff is essential for reaching the target customer. The distinction between recruiting sales representatives for direct sales and pyramid schemes is that with direct sales, you contact your target market directly with a product. Pyramid scams offer money without having to sell anything.
What’s the Difference Between Channel and Direct Sales?
A third party is engaged in selling the goods to the end customer in channel sales. A third-party may be a company-hired distributor, a retailer, or a wholesaler. Direct sales, on the other hand, are when a manufacturer sells a product to a customer directly.
The second distinction is that in channel sales, businesses do not engage with customers, while in direct sales, salespeople contact with customers throughout the sales process.
While channel sales require a portion of earnings to be split with the third party, direct sales allow merchants to keep the full profit.
Large companies will benefit more from channel sales, while smaller firms will benefit from direct sales.
Both channel and direct sales have advantages and disadvantages, as we’ll see later.
Pros and Cons of Channel Sales
The Pros:
Low costs of sales, marketing, and distribution:
The channel partner often has a well-established presence, is well-known and trusted among local consumers, and promotes their brand and the value it provides. Based on all of this, you may reach out to new consumers at a low starting cost and enter new areas and markets at a cheap cost.
Scaling that works:
If you already have a channel sales strategy in place with revenue sharing, co-marketing, incentives, and other strategies in place, you can expand up quickly by bringing on additional channel partners. One partner manager may oversee several relationships, bringing in income that would otherwise require a full in-house sales staff.
Expanding into new markets at a low cost:
With a little initial investment, a network of local partners may help you establish a presence in a new area or market. You won’t have to form and manage new businesses, promote locally, employ workers in far-flung places, or manage new offices.
The Cons:
Control over the sales process is limited:
Selling via partners entails a middleman between you and the customer. Depending on the model, your company may or may not be involved in the sales process, giving you little or no control over the result of sales prospects.
Revenues are less predictable:
When you don’t have control over the sales process, partners won’t always share their whole funnel with you, and even if they do, it’s difficult to forecast revenues. To some extent, this may be mitigated by having a bigger pool of partners with a larger overall pipeline.
Discounts for partners:
Depending on the kind of partners you have and the value they offer, you’ll need to split anywhere from 20% to 50% of your income with the one who closes the deal.
Pros and Cons of Direct Sales
The Pros:
Complete command of the sales process:
You have complete control over the evolution of your sales process and the management of your pipeline, with no intervention from other parties.
Line of direct feedback:
Because you’re selling directly to consumers, you’ll receive immediate feedback on what they like and dislike about your product or service, and you’ll be able to iterate fast.
Learn what Customer Satisfaction Survey is, how to conduct it and use it in your product development strategy.
There are no discounts:
You won’t have to split income with a reseller or channel partner if you sell directly.
For income creation, there is little or no reliance on other parties:
You have complete control over the sales process, price, and all other aspects of it.
The Cons:
High Price:
It costs a lot of money to train and manage a sales staff. A sales team, like any other group or division, has managerial and administrative overhead in addition to salary, incentives, and other costs.
Scaling is difficult:
Recruiting, training, and onboarding new sales representatives are all necessary steps in scaling a sales force.
New market entry hurdles are high:
Entering a new market with a direct sales force necessitates the formation of a new business, a new office, and all of the associated costs. When compared to entering a market via a network of local partners and resellers that already have a presence on the ground, it’s a pretty costly effort.
What is the definition of a sales channel strategy?
A sales channel strategy is the act of forming commercial relationships with third parties in order to expand a product’s market. More consumers can get their hands on your goods if you use a sales channel plan in your company.
To execute your sales channel strategy, you must do extensive research and prepare appropriately.
Follow these steps to do this:
Step 1: Evaluate your existing sales strategy.
The first step is to double-check that you’re at the right stage for sales channels. Consider if your available bandwidth is sufficient for sales channels. The objective is to increase the number of consumers that purchase your goods, so make sure you don’t mess up the existing sales process before moving ahead.
Step 2: Evaluate your sales associates
Check with your partners to ensure that they are a good match for your company. Before doing business with a prospective sales partner, get as much information as possible about them. You’ll need to create an ideal mate profile in this case. The profile will include the qualities you’re looking for in a sales partner. Make certain that each companion you choose satisfies all of the criteria.
Step 3: Educate and empower your partners to assist you in increasing sales.
Now that you have partners, give them the authority to execute in a way that will help you increase sales. Inform a freshly acquired third party on the benefits of working with you.
This will motivate them to work as hard as or even harder than the direct sales staff in order to reach more consumers. Partners will be motivated by discounts, a portion of the income, or referral incentives. It would be ideal if you could additionally empower these partners by providing them with product or service training.
Step 4: Hire a sales channel manager.
Finally, for the seamless operation of the company, employ a channel sales manager to handle partner connections. Every partner will get the attention they need to successfully carry out their responsibilities. The channel sales manager you hire will keep a close watch on results and offer the necessary resources.
How to Boost Your Channel Sales
You’ll be giving materials to your prospects and consumers throughout the sales process to help them understand your message. The sales boats you use will aid in the distribution of the goods to customers in various places.
Maintain open channels of communication throughout the sales process. In exchange, the sales representatives will reach out to a larger market, allowing you to offer more goods. As a result, you will earn more money.
Online platforms at your disposal will enhance your earnings via sales. Many individuals use the internet to look for items that may assist them solve issues. When you use the online sales segment to target these individuals, your channel sales rise as a result.
Questions to Ponder When Selling Through Channels
Question 1: How do you assist your partners in generating revenue?
Because this is the basis of a successful relationship, there must be a clear and straightforward response. You might be improving their client offering, diversifying their portfolio, or providing them with something else in addition to the discount they’ll get for each transaction.
Question 2: How does your spouse assist you in earning money?
You should consider all of the expenses of establishing and sustaining this connection, as well as the income potential. These connections may sometimes be high maintenance and poor value, in which case selling directly or terminating the relationship is the best option.
Question 3: What advantages does the partner provide?
Do they have a big and devoted client base, are they regarded as local specialists in your target area, have a broad marketing reach, and so on? Different partners will provide a different combination of perks, so create a list of what you want and cross out anything that applies.
Question 4: How can we establish a direct channel of communication with our customers?
Many partners are protective of their clients, and you, your representatives, or support engineers would not be allowed to speak with them directly. This direct connection is critical since it allows you to enhance your product while also ensuring that the partner provides a useful service.
Questions to Ponder When Selling Directly
Question 1: Does every customer need modification or improvements to our product or service?
If extra services are usually needed to properly use what you have to offer, you’ll probably need a network of local partners to supply these services.
Question 2: What is the internal projected cost of sale, and how does it compare to the partner discount we’d have to give via a channel?
If the internal cost of sales is substantially greater than the channel discount (external cost of sale), the sales rep profile, price, or anything else in the mix should be adjusted.
Question 3: Do we have the resources to build and manage an in-house sales force in all of the areas we want to go after?
If you’re a small business, you may not have the means to hire and maintain an in-house sales staff, particularly if you want to sell to various regions.
Question 4: Do we have a direct channel of communication with our customers outside of sales?
This may be done via customer service, customer meetings, or other methods, since surveys alone will not be adequate to get a sense of what your customers need.
Takeaways at the End
It may take a long time and a lot of trial and error to find the appropriate sales channel or combination of channels. For the same product or service offering, various markets may need a different strategy. It’s also probable that certain channels will be more or less successful depending on where your business is in its development.
When you’re a smaller company, you may require the help of partners, but as you grow and develop, you may be able to reach out to your customers directly, lowering your sales and distribution expenses.
For more than 25 years, Direct Sales Force has been providing the best sales and marketing training for the direct sales industry. We offer the best training, the best technology and the best support for any direct sales team.. Read more about channel sales best practices and let us know what you think.
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Frequently Asked Questions
What is the difference between channel sales and direct sales?
Channel sales are when a company sells their products through a distributor or retailer. Direct sales are when the company sells directly to the consumer.
What is a channel sales strategy?
A channel sales strategy is a plan to sell products or services through multiple channels of distribution.
What is the definition of channel sales?
Channel sales is the amount of money that a company makes from selling products to its customers.
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- channel sales vs direct sales
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