63% of companies say channel sales partners contributed to their annual revenue. Yet, although it’s widely used, channel marketing remains mostly a grey area in terms of how to use it and whether it’s necessary at all.
But at the same time, with companies looking for more ways to expand their reach and find new growth opportunities, channel sales will only become more prominent. They offer unique advantages that are hard to match with any other approach.
But what is channel sales, anyway? And why should you use it?
To provide you with the whole picture, let’s look at the channel sales definition, its pros and cons, as well as some of the most common partnerships you could seek out.
Ready to get started? Then read on below.
What Are Channel Sales?
Channel sales are a process during which companies partner with third-party sellers to accelerate growth and reach a broader audience.
Unlike direct sales, which involve a company selling directly to their buyers, channel sales rely on the expertise and reach of others to grow faster, offering either exclusive deals or a cut of the profits in exchange for the sales that the third party brings in.
The most successful practices of channel sales revolve around accumulating a diverse range of channels for product promotion and sales, which not only bring in more revenue but also allow the company to start dominating its market and quickly accumulating a bigger audience.
It can also be very useful when expanding into new markets, as channel sales enable a company to take advantage of a third-party partner who has an established presence. That means that a company can enter a market while leveraging their partner’s authority and without having to create their own local presence, which can take a lot of time and resources.
Pros & Cons of Channel Sales
The main reason why companies are hesitant about using channel sales is a lack of familiarity with how it works. But even more so, it’s the fact that the benefits and potential risks aren’t well understood as well.
To address that, let’s look at some of the most important pros and cons of channel sales, which should help you draw your conclusions about whether it’s something you should consider for your business.
First, here are the pros.
Scaling a business is one of the biggest challenges owners face. There’s a limit to how much you can optimize current lead generation approaches, and expanding into new markets takes a lot of planning and resources.
With the help of channel sales, you can avoid many of the challenges that go with scaling your business, shifting the large portion of the work to third-party partners who will generate sales for you.
If you find the right partners, you can gain instant access to large markets you had no way of reaching before, which can accelerate growth and ensure that the flow of new business doesn’t run out.
What’s more, channel sales also help you leverage the human resources your partners can offer. There are only so many salespeople you have at your disposal, and at some point, the rate at which you can convert leads into clients is going to stagnate.
However, if you partner up with another business that sells for you, that means you can focus on running your business and have the sales come in virtually on autopilot. Then, you start thinking about the fact that you can potentially partner up with dozens of companies, and the potential for scaling becomes almost limitless.
Reaching New Customers
Reaching new audiences is a big challenge. For one thing, you are limited in how many channels you can pursue at once. But at the same time, you might not have the budget or the experience to tackle some of the approaches your competitors are using.
That’s where channel sales can come in as a massive boost to your efforts of expanding.
If you can develop strategic partnerships with companies that are in a position to enter a particular market, you can cut through a lot of the obstacles you would face on your own and start generating sales much faster.
This way, you can take advantage of the expertise and know-how of the company you’re partnering with, avoiding the costs of having to figure everything out on your own and taking advantage of the unique position you can find yourself in.
For instance, if you want to sell your product in a different country, you can probably imagine how much red tape and issues you would have to overcome before making a single sale. Meanwhile, if you find the right sales channel that works locally, you can avoid that altogether and get straight to generating sales without having to worry about any of the details.
One of the top priorities for any business is to maximize the lifetime value of a customer while also minimizing the cost of acquiring them. To achieve that, a company must be willing to continually track and tweak its approach, prioritizing areas with the biggest returns over those that take up time without producing the desired outcomes.
And even though channel sales do have some costs associated with compensating the third-party providing the sale, it might still turn out to be the most profitable and cost-effective way of generating enterprise sales and growing your business.
Sure, you probably have reliable and tested direct sales approaches that have worked for a long time and are generating good results. But at the same time, you will only find out whether channel sales could do even better if you give it a try and expand your network.
For instance, HubSpot found that the LTV:CAC ratio when selling directly was 1.5, while the same rate was as much as 5 when selling through the channel.
The difference might not be as stark in your case, but it’s always good to try and expand your ability to make sales through multiple channels and then see which ones are the most profitable.
Entering a new market is not easy. Especially if you’re a startup or a less-known company that just isn’t yet known in that region. Luckily, there’s a way to circumvent that issue entirely by leveraging the authority and trust of a partner you use as a sales channel.
When you use a sales channel that has a strong reputation in a specific market, you can make the sales much easier and reduce friction by leveraging that reputation to your advantage.
Instead of having to build trust from the ground up using brand awareness campaigns, you can leave the process to someone who has in-depth knowledge of how that market operates, what approaches work best, and how to use their previous success to sell your products faster and with better margins.
Even though the advantages of using channel sales are substantial, it does have some drawbacks as well. Let’s take a look at them below.
Having to Share Revenue
The most obvious disadvantage of channel sales is having to share your profits with a third party. When you generate sales on your own, you get to keep all of the profits minus the customer acquisition cost, but with channel sales, additional expenses will also have to be paid depending on the type of arrangement you’ve reached.
However, this is not really that big of an issue if you manage to find the right partner.
For one thing, if a partner can offer you the opportunity to scale and expand, the sheer amount of sales will more than compensate for the percentage you have to share.
What’s more, they will likely take over parts of the sales process, meaning that acquiring sales costs less for you as well.
Finally, every sale you make is an opportunity for more sales down the line to the same customer. If you can ensure a high customer lifetime value, you can be very generous with your channel sales partners and still make a hefty profit.
Less Control Over Your Brand
Protecting your brand’s reputation is a top priority. And while you can control how your sales team interacts with customers, you won’t have the same control when you use channel sales and partnerships with other companies.
That will be a compromise you will have to make when you decide to expand through channel sales, which might not be something all business owners are willing to do.
However, the good news is that even though it’s impossible to have the same control as you would with direct sales, you can still establish rules and processes that offer at least some protections. With these in place, you can set up guidelines for how the deals must be set up and give yourself more control over the sales timeline, ensuring more predictable revenue.
Finding Reliable Partners Can Be Difficult
When using channel sales, managing partners is a hassle in itself that you’ll have to get used to. Not all partners are created equal, and some might underperform or turn out to be absolutely unreliable.
And unfortunately, there’s not much you can do about that, at least initially. Before you gain more experience with channel sales, knowing who’s a good fit will mostly be a guessing game. You will also need time to develop processes and guidelines that work in your industry and situation.
The good news is that just as with any other marketing or sales approach, time and testing usually solve most of these problems. And as you collect more data, you can weed out the partners not generating the necessary results and learn what to look for based on the ones that are performing well.
Fewer Customer Insights
Finally, for a business, one of the biggest advantages of making direct sales is the number of insights you can gain about your customers.
Since your sales team won’t get to have direct conversations with prospects, you will miss out on some of the data you could have had when qualifying a lead over the phone, which can seem limiting.
However, in many cases, you will find that the sales you generate through your partners were from markets you didn’t have access to, which means you wouldn’t have had access to the insights from those sales in the first place.
And as you work with the customers after the sale, there will still be plenty of opportunities to learn more about them and figure out how to cater to your audience’s needs more effectively.
Types of Channel Sales Partnerships
At this point, you are probably convinced that the advantages channel sales can offer considerably outweigh the risks and challenges it can come with. But to make the most of what it has to offer, it’s also essential to understand the types of sales partnerships you can potentially use.
Let’s look at them below.
- Referral Partners. One of the most common types of channel sales partnerships is a referral partner. They could be business partners or even clients you trust, who refer qualified leads to you in exchange for a commission.
- Retailers. If you have physical products with a more general demand, you could utilize retailers in physical shops or showrooms to get your product in front of more people.
- Outsourced sales. Sometimes, you might decide to outsource an entire sales team that would source and close clients for you.
- White label. You could also allow your channel sales partners to add their branding to your product, limiting your brand’s exposure and reducing some of the risks associated with this method.
- Distributors. If you want to get your products in many stores at once, you may use a wholesale partner that can get your products to a wide range of partners in various markets.
A channel sales strategy can be one of the most powerful ways to accelerate the growth of your business and expand into markets you couldn’t otherwise reach.
If you are willing to accept the potential drawbacks and take the time to carefully select your partners, there’s no reason why channel sales couldn’t become your most powerful strategy for generating sales.