Channel sales refer to the process of selling products or services through third-party partners (also known as intermediaries) rather than directly to the end customers. These partners can include resellers, distributors, agents, brokers, or value-added resellers (VARs), I’ll share a little about intermediaries below in this post. In many industries, including software, electronics, and consumer goods, channel sales is a common strategy as it allows companies to expand their reach and leverage the expertise and customer base of their partners. 

Let us take a more detailed look at what channel sales are about. First of all, we need to understand what different channel partners do:

Resellers: Buy products in bulk and sell them to end-users or other businesses. For example, famous resellers like CDW and Best Buy focus on direct sales to consumers or businesses. 

Note: CDW is a major technology reseller that offers products from leading tech companies like HP, Dell, and Cisco, and Best Buy is an electronics retailer that sells a variety of tech products directly to consumers.

Distributors purchase products in bulk from manufacturers and supply them to resellers, retailers, or end-users, often providing logistical and marketing support. The great reps of this business type are Ingram Micro – one of the largest technology distributors, providing a wide range of IT products to resellers and retailers, and Tech Data – a global distributor of technology products, services, and solutions. Such companies handle the logistics of storing and shipping products to resellers or end customers.

The Value-Added Resellers (VARs) usually upgrade the existing product with additional features or services and then sell it. To give you a couple of examples, I’d name Softchoice, an IT solutions and managed services provider that offers software and hardware solutions with additional services like consulting and support, or the company called Insight Enterprises, a global technology VAR that provides IT solutions, services, and support to enhance the value of the products they sell.

And of course, there are Agents or Brokers – companies that facilitate sales between the manufacturer and the end customer, often earning a commission. These companies act as intermediaries between buyers and sellers. They do not take ownership of the products, but facilitate transactions for a commission or fee. Talon Aerolytics, for example, acts as a broker for telecommunications infrastructure, connecting carriers with tower owners; and businesses like RE/MAX play the role of agents who facilitate property transactions between buyers and sellers.

The core of channel sales (the so-called Indirect Sales Model) is that the manufacturer or service provider sells its products indirectly through partners who then sell to the end customer. This model contrasts with direct sales, where the company sells directly to the end-user.

Companies often establish formal partnership programs to manage their relationships with channel partners. These programs can include training, certifications, co-marketing efforts, and financial incentives.

The main benefit of channel sales lies in market expansion: by setting up channel sales partnerships, companies can enter new markets and regions more quickly than they could on their own. Partners who are already established in these markets can provide local expertise and customer access. 

By working with channel partners, companies can share the burden of sales, marketing, and customer support, allowing them to focus on product development and other core activities.

And of course, as every other business, channel sales can bring both, advantages and challenges, to the business players. Among the advantages, I’d name these-

The Benefits:

1. Scalability: Channel sales provide a scalable model for business growth without the need for a large direct sales force.
2. Cost Efficiency: Reduces the costs associated with hiring, training, and maintaining a large sales team.
3. Market Penetration: Partners can help penetrate markets that are difficult to enter directly due to regulatory, cultural, or logistical barriers.
4. Leverage Partner Expertise: Channel partners often have specialized knowledge and relationships in their local markets, which can lead to more effective sales strategies.

So, as a company that is setting up channel partnerships with the idea of increased market reach, you obtain established customer bases and networks from your partners and reach out to new geographical markets without the need to establish a physical presence there. You can also let your partners take care of a big chunk of sales work; and you can avoid having to hire whole teams of professionals in the areas beyond your core expertise, which in its turn will help reduce general operational expenses of expanding to new market sectors. 

In many cases, channel partners can also take care of marketing and customer support responsibilities, which can lead to cost savings, as well. So, by outsourcing sales efforts, your business can focus more on core activities such as software development and innovation.

As for the challenges, most of them lie in the area of competing for certain market sectors and complications happening due to the partner companies’ lack of competence in certain areas.

The Challenges:

1. Channel Conflict: Potential conflicts can arise between direct sales teams and channel partners, particularly if they are competing for the same customers.
2. Control and Alignment: It can be challenging to ensure that partners are aligned with the company’s brand and sales strategies.
3. Training and Support: Providing adequate training and support to partners to ensure they can effectively sell and support the product.
4. Performance Monitoring: Tracking the performance of various partners and ensuring they meet their sales targets can be complex.

How to  Effectively Manage Channel Sales

The core elements of channel sales management are the complex business processes which in a simplified way could be structured and listed as:

• Clear Channel Strategy

• Incentives and Rewards

• Regular Communication

• Training and Resources

• Performance Metrics

Take them as the key words which require thorough study and thinking before you start setting up your channel sales program. Each of these items deserves special attention and we will discuss them in separate posts. But speaking generally, setting up channel sales can be a strategic move, but it depends on several factors specific to your business and market.

Okay, What Should You Know Before You Set Up A Channel Partnership?

First and foremost, there is a task of finding the right partners: you’ll need to ensure that potential partners have aligned interests and are motivated to sell your services effectively. You’ve got to try hard and select partners with the necessary expertise and a good track record.

Then comes the task of maintaining control over how your brand is represented by the third parties, so you will need to provide adequate training/support to ensure partners understand your services and value proposition.

Then comes the task of managing competition: to avoid conflicts between your direct sales team and channel partners (especially if they are targeting the same customers), you’ve got to set clear boundaries and guidelines to manage territories and customer segments.

And finally, you’ll need to do continuous performance monitoring by establishing key performance indicators (KPIs) to ensure your partners are meeting sales targets.

The key to success in these processes lies in the ability to maintain regular communication with partners: so you’ve got to quickly address any emerging issues and provide updates on a regular basis.

And finally, let us see what should be done to establish a channel sales program if you decide to start the journey:

How To Set Up Channel Sales

Step 1. Develop a Channel Strategy:

• Outline your objectives, target markets, and the types of partners you need.
• Define the roles and responsibilities of your channel partners.

Step 2. Identify and Recruit Partners:

• Look for partners with complementary services or those already serving your target market.
• Use industry networks, events, and online platforms to find potential partners.

Step 3. Create a Partner Program:

• Develop a structured partner program with clear incentives, training, and support.
• Provide marketing materials, sales tools, and technical support to help partners sell your services.

Step 4. Implement Training and Onboarding:

• Conduct comprehensive training sessions to educate partners about your services and value proposition.
• Offer ongoing support to address any issues and keep partners informed about new developments.

Step 5. Monitor and Evaluate Performance:

• Use KPIs and regular reporting to track partner performance.
• Conduct regular reviews to assess the effectiveness of your channel strategy and make adjustments as needed.

By leveraging the strengths of channel partners, you can expand your market reach, reduce costs, and focus on your core competencies. The benefits you can get are worth the effort of careful planning, strong partner relationships, and ongoing management to be successful.

The five-step plan I offered above is very general, of course. If you want to develop each step into an efficiently working business process, you are welcome to contact me for consulting and a more detailed plan of actions.