The power of the indirect sales channel.
In the last 90 days, we’ve had more client conversations about channel development than any point in the last three years.
The appeal of selling through channels is enticing, like a shiny fishing lure moving through the water. Reasons often cited are increased capital efficiency and less time spent winning new customers.
While these are powerful motivators, executing effectively requires diligence and expertise.
For example, companies may turn to indirect sales when product demand outpaces the company’s ability to finance, hire, and maintain quality salespeople. A low product price is another because a large sales force is too expensive.
Indirect sales also gives companies back valuable time to focus on their product.
In exchange for a slice of the margin stack, prospective channel partners provide access to their buyer clientele. At least that’s the theory.
But theory seldom aligns with the real world. Building a productive channel ecosystem starts with having the right strategy. This requires mastery of both sales motion and execution, and a firm grasp of unit economics.
Basic primer on types of channel partners.
Let’s start with the basics. There are many sales channels, each with their own characteristics and leverage. While this list doesn’t cover them all, it covers most:
Direct sales involves salespeople who engage with prospects and convert them into customers. Phone-based sales and field sales are the familiar models.
A reseller sales channel acts as a marketing channel. They don’t provide your customers with much value beyond transacting the sale.
Value-added resellers are partners who provide services that complement or extend your product. They deliver a complete solution to their customers. Unlike pure resellers, the delivery of services not margin provides the bulk of their revenue.
A system integrator channel involves partners who also develop more complete solutions. In a nutshell, they integrate your product with those of other vendors.
Distributors and Value-added Distributors.
Distributors and value-added distributors grant access to a pool of resellers or value-added resellers. This is all about leverage.
Original Equipment Manufacture Channel.
The original equipment manufacturer (OEM) channel includes companies with their own product to sell. These companies are looking to expand their offering with your product, often by bundling.
This isn’t a complete list. For example, other categories include online sales and affiliate sales. But we are not going to cover these types of channels in this blog.
It’s critical to spend time understanding how your business model aligns with a particular type of channel partner. Your product or service will also dictate your channel type. Failure to understand this point contributes mightily to false starts and missed expectations.
Understanding motivation is key to good alignment.
Most emerging growth companies start with direct sales to fine-tune product market fit. They also do this to document the sales motion, and build out persuasive sales aids. Then they add channel building to the mix for rapid scale.
Reseller sales partners earn the majority of their revenue through the margin you provide. Your unit economics needs to take this into account. If your company is a SaaS provider, this group will have little to offer.
Good value-added resellers think of customers as their own. In other words, they’re “renting” you access to them. Success requires you know how to deliver the service yourself before teaching others how to do it.
System integrators make the majority of their revenue through services. Pushing products is not a big revenue driver.
While ideal for some, distributors are especially difficult for SaaS companies to leverage.
Keep these in mind as they reveal clues about which type of channel partners may be most suited to propelling your business forward.
The benefits of a healthy, productive channel.
Whatever type of channel partner is right for your business, there are four key benefits of having an indirect sales model:
Tapping into an existing customer base.
If you work with resellers, you can build on the relationships they already have with their customers. This means you can reach more customers and you can leverage your partners’ relationship equity.
Indirect sales are cost-efficient.
Resellers often have their own sales and marketing teams and networks. Good ones have the well-oiled practices and processes to deliver efficient, sustained results.
Indirect sales increase speed to market.
Indirect sales channels allow you to build market presence quickly and easily. Often with low risk and cost. This is especially helpful if you do not have your own sales force, or if you enter a new market where your brand doesn’t have a strong presence yet. This could be to test a new product or service, or to increase your geographic footprint.
Established logistics allow you to streamline, scale, and focus.
More often than not, resellers already have a certain level of logistical infrastructure in place. Use this to streamline and scale your operations in a simpler and faster way.
Beware of common potholes and pitfalls.
As with all things, there are risks. Building a channel is no different.
A successful partnership is one with a relationship focused on optimization. Progress depends on effective communication between the sales team and the partner. If not, the alliance has the potential to become unpleasant and unproductive.
Above all, transparency and integrity underpin the most successful commercial relationships.
There are a handful of mishaps that can occur with this sales model. This post from LogicBay highlights several.
With indirect sales, company leaders give up control over their sales activity. On occasion, they will turn it over completely to their partner, who then calls the shots. This is a big ask for some companies, but the potential is great.
Indirect sales also can mean lower profit per unit. When utilizing a partner to help sell a product, the company needs to provide them with part of the revenue.
One last drawback to mention is slower feedback cycles. This can take place because a reseller handles business relationships. When the initial company has minimal connection to the sale, they may miss out on timely feedback from customers.
To avoid this, the reseller should have an honest and open relationship with the company whose product they are selling. Keeping the company involved in all aspects of progress and pitfalls is vital to the success of the partnership.
Samsung Business Executive Vice President Kevil Gilroy explained in a Salesforce article that indirect selling embraces a different mindset than direct. Companies must be open to critical feedback and all sorts of changes across their sales process.
Gilroy says if a company is able to motivate and build trust across the channel, they will develop resilient relationships. Such a relationship will benefit both businesses.
If you’re looking to adopt an indirect sales model, make sure to have boundaries and a plan with clear accountabilities in place. A more fruitful relationship will follow.
Don’t overlook alterations that will inevitably happen in your sales process. This is an opportunity to understand how to improve on your own as well.
How we get started building a channel.
We use a five-stage process to build a channel with our clients.
We begin with analyzing the client’s target market, end-buyer profile, and their ideal partner profile. With that, we discuss product pricing. Then we help construct a value proposition.
Next, we prepare and plan. This means we help create engagement models and establish partner types we’ll want to aim for. In this stage we will also determine the KPIs we will use throughout the selling process.
The following stage is implementation. We launch the pilot program, including training the sales team and building out infrastructure support.
After implementation is complete, we enter the measurement stage. This is where we measure KPIs and track satisfaction. In doing so, we also help with presentations, proposals, negotiations, and winning business.
The final stage is account management. In this stage, we help lead discussions on support and promotions, as well as pipeline reporting.
How we can help.
Our routine starts with a Strategy Workshop to understand your business goals and objectives. Topics span ideal partner profile, target markets, sales motion, and the like.
We then collaborate with you to develop SMART goals so duties and responsibilities are clear.
Typically we provide one or more dedicated outsourced channel development specialists as the foundation for the “engine.” This part of the service performs tasks and activities like targeting, prospect lists, email and phone outreach, appointment setting, lead qualification, and new partner closure.
Embedded in the service is our management system consisting of a custom playbook and a high velocity selling environment with regular huddles. We provide productivity tools and reporting, coaching, and executive-level sales support.
Curious? We love talking sales – give us a call.