Direct sales vs Channel sales - What's the difference?
Quite simply, direct sales is when a company sells its only products and services ‘directly’ to its client or customer base without an outside party involved.
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. But on further consideration this is not always the case.
When competently analysed, direct sales are full of hidden (and not so hidden) costs - salaries and overheads.
Imagine what it would cost Coca Cola to vend directly to their customers! The costs would eventually prohibit the activity entirely.
Instead, Coca Cola chooses to sell its products through third parties, such as shops, supermarkets and via vending machines.
Of course, they still make healthy profits, but they don’t incur the cost of having a huge sales operation. That’s not to say that Coca Cola Corporation doesn’t spend millions on sales and marketing activities, but they don’t actually sell directly to their customers.
Some companies such as Apple now primarily sells its own products via its website and retail stores, although they have allowed some other companies such as PC World to stock their computers as they’ve become more popular.
Of course, in order to increase the number of items sold worldwide, with products like the Apple iPod, they have allowed resellers to sell their products too, in order to massively expand where the iPod can be bought. This is known as Channel Sales.
Two thirds of all computing sales in the world are not direct sales like Apple; instead, they are ‘Channel Sales’ or ‘Indirect Sales’. This is where the company employs a third party, a reseller to sell their products on to their customers.
The most obvious example of a company that does this is Microsoft. Microsoft’s products are sold through ‘Channel Sales’ because Microsoft would have to become a retail operation in order to achieve the same level of global sales. This would hugely increase their costs and still not be as effective as ‘Channel Sales’.
Both Microsoft and Apple use Channel Sales because it makes sense. Both companies use Channel Sales in different ways. Microsoft to reach as far as possible and Apple to expand the sale of their most popular products.
Apple has developed a mixed approach, which has allowed it to capture an increasingly large share of the home computer market, while retaining some control over how individual products are sold.
Channel Sales is like outsourcing the costs of having your own far-reaching sales operations, whilst still retaining an excellent portion of the sales profits. These days the relationship between the seller and the reseller is much closer, allowing for better cooperation and coordinated strategies.
Channel Sales doesn’t just mean shipping your products off to a third party and hoping for the best. Channel Sales means keeping your outsourced sales teams up to date with your products, ensuring that they are adequately informed and regularly updating them on changes and issues in order for them to function at their best.
Nonetheless, this is significantly less costly than training and maintaining your own sales teams. Particularly with the current global economic problems we are all facing, any opportunity to save money and increase profits has to be considered a benefit.
This type of outsourced sales through partnerships with resellers is effective for strategic growth and for the increase in incremental revenue for the vendor.
But some companies don’t feel that they can rely upon the effectiveness of resellers to do their products justice.
Finding the right strategic partners is of course an essential part of using Channel Sales. Without the right partners, you are handing your potential growth over to another company without a guarantee of revenue. Finding the right Channel Sales partner is a very important process when making the decision to expand your business through indirect sales.
Your Channel Sales partners are motivated by a need to make profit for all concerned. The more sales they make, the more they earn. Selling or reselling is what these companies do best. Your company may make ‘widgets’, that’s what you do best. Whereas your Channel Sales partner is an expert in making sales, or if you prefer generating sales leads.
Using Channel Sales leaves you the time to develop your products instead of spending time and money on making sales. This doesn’t mean that you shouldn’t have your own sales activities or that you should rely entirely on indirect sales, but the effectiveness of Channel Sales cannot be ignored.
The main benefit of working with a Channel Sales provider - a reseller, is that you can rapidly expand your business without having to rapidly expand your entire business operation.
Of course, if you then wish to slow any aspect of your business down, you can stop supplying your resellers with certain products or introduce new ones with little fuss. All of this costs the vendor nothing in terms of initial outlay; the cost of Channel Sales comes after the sale is made.
Overall, it doesn’t have to be an either/or decision; companies can employ channel sales partners in order to get the most expansive sales growth.
It’s been successful for companies like Apple and Dell in the past. But it’s important that if you’re going to combine the two activities that there isn’t conflict within the channels or between direct and indirect sales staff. This is why finding the right Channel Sales partner and building a strong ongoing relationship with them is so important to your business.