The discussion of what is channel sales vs direct sales has been long-debated, so I?m going to break down the pros and cons for each. For example, some people say that they are better at finding prospects or that they find it easier to close deals with customers who were already sold on their product by a third party.

You have to be strategic about the way you use both your direct and indirect sales channels. For example, if I am selling a product that is only available in stores, then my best bet would be to focus on getting store placements.

In this post, we?ll take a closer look at each channel vs direct sales and ask some questions that will hopefully help you decide if it is the right one for your business.

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Go through a variety of filters to zero in on the leads you want to reach. This is crazy specific, but you could find all the people that match the following:Ā 

  • A company in the Financial Services or Banking industry
  • Who have more than 10 employees
  • That spend money on Adwords
  • Who use Hubspot
  • Who currently have job openings for marketing help
  • With the role of HR Manager
  • That has only been in this role for less than 1 year
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Table of Contents

  • What Are Channel Sales?
  • What Are Direct Sales Channel Strategy?
  • When it comes to sales, there are two major categories: channel and direct. Channel typically refers to a third-party retailer who sells your product in their store or online through an ecommerce site like Amazon
  • Channel Sales: Pros and Cons
  • Direct Sales: Pros and Cons
  • The article defines a sales channel strategy as being an essential part of any company’s marketing plan. It describes how you can create one for your own business, and the benefits that come with it.
  • How to Increase Channel Sales
  • Questions to Consider when Selling through Channels
  • Direct Sales: The Questions to Consider
  • Final Takeaways

What Is Channel Sales: The Sales Channel Definition

Channel sales is the process of distributing a product to the market by focusing on different selling vessels. For instance, in-house sales teams might be used for one type of sale and dealers or retailers could also be employed depending on what makes sense.

Selling your product or service through a network of channel partners can provide great leverage to your business. Click To Tweet

Channel sales include any type of third-party that offers the customer’s final purchase.

One way to increase your business is by utilizing resellers, distributors and other types of channel partners. These people can help you reach a wide audience for potential customers.

When you are looking to enter a new market, it is very cost-effective. You save money on not having to maintain local operations.

Breaking Down the Channel Marketing Sales Process

There are two main sales channels: Direct and Indirect. On a high level, they operate in different ways.

The different channels of distribution that you may use to market your product can have multiple revenue streams.

  • When I first began hiring salespeople, I just assumed pay along with commissions and bonuses would be enough to motivate new customers. However, people are not just motivated by base salary or commission structure.
  • Adding on to a customer’s purchase is what I call up-selling.
  • Cross-selling is not as easy because it requires different tactics.

In this section, we will first cover indirect channel sales. In the next section, direct sales and their proscons will be discussed.

The Four Selling Channels of Distribution

Channel sales are when a manufacturer sells their product to different distributors. The fourth channel introduces the consumer, who is typically not involved in other channels.

channel sales

1. Direct Distribution Channel

Some salespeople also refer to the direct channel as a zero-level distribution system. In this type of system, manufacturers sell products directly to consumers and they don?t have fixed locations where they do retail selling.

In the modern day, direct sales are being used to a greater extent through internet distribution and party plan tactics. Salespeople demonstrate how a product works in person and sell it directly.

Manufacturers with perishable goods, or those who have expensive products and a small audience concentrated in one area of the country use this sales channel.

2. Selling Through Intermediaries

One way of indirectly distributing a product is to use a third party, or middleman. The consumer buys the manufacturer?s products from this person and they sell it for more than what they paid.

The indirect channel is broken down into three different types: one-level, two-level, and three level.

One-level channels:

When you are a manufacturer who deals in products such as clothes, toys or furniture, one channel will help you reach more customers and therefore increase your profits.

Two-level channels: 

The channel of distribution is the path that a product takes from when it was manufactured to how it eventually gets sold at retail.

The wholesaler will buy a product in bulk, repackage it into smaller packages and sell them to the retailer who then sells these goods at retail prices. The products should be durable or inexpensive for this two-level distribution system to work.

Three-level channels:

When a product has to go through four or more levels of distribution before it reaches the consumer, this is known as the three-level channel.

In order to sell a product quickly, the agent becomes an important part of the sales process. This is especially true when there are high demands for a particular good or service and consumers aren’t in one location.

3. Dual Distribution

It is important for companies to use more than one sales channel because it makes the process of getting a product out there easier.

It is possible for a manufacturer or wholesaler to open up a showroom in order to sell their product while still using online platforms. This will also attract other retailers who are looking for consumers of the same products being sold on both internet and offline channels.

If you sell a lot of computers, it is best to use dual distribution because this allows for your products to be sold in many different places.

4. Reverse Channels

There are different channels for the flow of goods in a business. The manufacturer produces the good, and then it goes to an intermediary that distributes them through indirect or dual distribution channels before reaching the consumer.

Reverse channels do not follow the sales process in order because of technology. This is due to the resale and recycling of products introduced by new technology.

A salesperson may find a product that is still valuable and turn it into something else, such as recycling an old water bottle to make flowers. The person who recycles the item becomes the beneficiary of this sale.

What Is Direct Sales?

Direct sales is a way of selling to customers without having an office. The sale can be made in person, over the phone or online.

When you sell in multiple markets, it’s difficult to have a sales team close enough for each one. In this case, your company may need local teams which will increase costs and management overhead.

3 Types of Direct Sales Model

Direct selling is when a company sells products to consumers directly. There are three types:

channel sales

1. Party Plan Sale

A party plan sale is when a sales rep invites potential customers to an event where they will learn about the product. The company representative will be able to talk in detail about what makes their product special.

The salesperson will show the product in action and explain its benefits. They’ll provide supporting materials such as pamphlets with more information, which they can hand out to attendees at their own discretion. Once a potential customer is convinced of the value of the product, he or she may be ready to make an order.

One of the best ways to sell more products is by engaging a group at once. When one person asks how something works, you don’t have to explain it in detail because they will be asking everyone else.

2. Single-Level Sale

In single-level sales, a salesman contacts people individually. The contact can be face to face or on the phone as you try and persuade them to invest in your product.

If you are selling a product door-to-door, it is single level direct sales.

You need to have a personal touch with every prospect, and that means having an approach tailored for them.

3. Multi-Level Sale

For multi-level selling, a company will typically pick the most qualified salesperson to sell their products. They’ll give this person some additional training and send them out into the field.

There are also benefits to the internet when it comes to multi-level sales. Online platforms can be a powerful way of marketing, and social networking is an effective tool in direct selling.

Are Direct Sales a Pyramid Scheme?

It turns out that direct sales is not a pyramid scheme.

Let me explain.

One of the things that makes a pyramid scheme so dangerous is its hierarchical structure. The newest recruits are at the bottom, providing returns for those sitting on top.

The scheme is to have people under you in your network. The only way for the person at the top of this pyramid-like structure to make money is if they recruit more members into their group without selling anything themselves.

For a pyramid scheme, it is more important to recruit people than sell the product.

Direct sales require you to be in contact with the consumer, so a static geographical position is not necessary. It also does not need a pyramid of reps under it.

When it comes to direct sales, the team is important in reaching your target audience. The difference between recruiting for a pyramid scheme and an actual business is that with the latter you are directly engaging with customers by selling them products. Pyramid schemes promise revenue without having any tangible product.

Channel Sales vs Direct Selling Channel: What?s the Big Difference?

When it comes to sales, there are two different types: channel and direct. Channel sales involve a third party who sells the product for you; this may be your distributor or retailer. Direct selling is when you sell directly to the consumer.

Channel sales involve the company interacting with suppliers and vendors, whereas direct sales allow for interaction between seller and consumer.

The seller only has to share a percentage of the profits they make from sales in channels, while direct sellers enjoy all profit that is made.

When a company is large, they will profit more from channel sales because of the higher volume. However, smaller enterprises that rely on direct sales to generate revenue do not need as much demand in order to be successful.

There are advantages and disadvantages to both channel sales (e.g., marketing, advertising) and direct sales

Channel Planning in Sales Management: Pros and Cons

channel sales

Why should you use Channel Partners: The Pros

Low cost of marketing and distribution

As a new company, you may not have the same brand recognition and customer trust as your channel partner. However, by utilizing their established presence in the area and allowing them to advertise for you with pre-existing customers; this will be less of an issue when trying to enter into markets.

Effective scaling: 

If you have a channel sales model, where revenue is shared with partners and there are incentives for both sides of the partnership, then one partner manager can effectively manage multiple partnerships. This will allow your company to bring in more revenue than an entire internal team would be able to do.

Expansion into new markets can be an inexpensive prospect.

You can establish a presence in new regions or markets with low initial investment by utilizing the power of your network. You don?t need to worry about any upfront costs, such as incorporating and managing companies, advertising locally for jobs or opening up offices

The Cons:

I had too much control over the sales process

Partnering with other companies means that there is an intermediary between you and the client. Depending on how your partnership works, your company may not be involved in any sales process at all so it will have no say over what happens to a sale opportunity.

Less predictable revenues:

One of the pitfalls in hiring partners is that they may not share their full pipeline with you. It’s hard to predict revenue when you have no control over how they sell, but this can be offset by a larger pool of employees who are working on bigger deals.

Partner discounts:

Some partners will be more valuable than others, and depending on the type of partner you have, you may need to share anywhere from 20% – 50% of your revenue with them.

Direct Sales: Pros and Cons

channel sales

The Pros:

A salesperson’s responsibilities should not be limited to just the products they sell. A successful company will give their employees as much responsibility for a sale as possible.

When you use Salesforce, it is your responsibility to maintain the pipeline and adapt sales processes. There are no external parties that get in between us so we can be confident with our results.

Direct line of feedback: 

As a salesperson, you are the one interacting with customers and getting direct feedback about what they like or don?t like. This allows for quick iterations of your product.

No discounts:

Selling directly is a great way to avoid the burden of negotiating commissions with resellers and other intermediaries.

When I first began hiring salespeople, I just assumed pay along with commissions and bonuses would be enough sales motivation. However, people are not just motivated by pay.

You are in control of the sales process, pricing and all components related to it.

The Cons:

High Cost: 

As a business owner, it is important to realize that developing and managing a sales team comes with the same types of costs as any other group or division. On top of payroll expenses like base pay and commissions, you also have management and administrative overhead.

Difficult to scale:

Recruiting, training and on-boarding are all critical components to scaling a sales team.

When you start a new business, it is difficult to enter the market because of high barriers for entry.

It is much more expensive to enter a new market with direct sales. This means the company has to start from scratch, including everything that goes along with it like office space and marketing materials.

What is a Direct Sales Channel Strategy?

Utilizing a sales channel strategy is the process of partnering with third parties to get your product in front of more potential customers. When you have multiple ways for people to buy from you, they will be less likely turn down an offer.

You have to do a lot of research and make plans before you can implement your sales channel strategy.

Here are some steps to take:

The first step is to assess your current sales process. What works and what doesn’t? The article talks about how a lot of time, money, and energy can be wasted when you do not know the best way for people in an organization to interact with each other.

The first thing you should do is evaluate your current position. Make sure that the channels are in line with what they need to be for them to work well, and think about whether or not you have enough bandwidth before moving forward.

Next, it is important to find out if your sales partners are motivated by the same things that motivate you.

Make sure that your partners are a good fit for the business. Before you start any work with them, learn as much about them and their qualifications as possible.

I learned that I had to train my partners and give them the authority they needed in order for me to succeed.

Now that you have partners, empower them to do the work they need in order for your company’s sales goals to be met. Be transparent with these third parties about what will happen if they help or hinder your business.

The company should also provide training for the partners so that they are knowledgeable about your product or service. This will motivate them to work hard because of their share in revenue, discounts, and referral commissions.

The next step in building a sales team is to find and hire the right channel manager. This person will be responsible for managing all your marketing channels including social media, print advertising, direct mail campaigns etc.

The final step in hiring salespeople is to hire a channel manager who will take care of partner relations. This person?s job includes making sure that each partner has the resources they need, as well as keeping an eye on their performance.

How to Increase Channel Sales

When you are trying to sell something, your sales message is communicated through different channels. For example, when I’m pitching a company that has an app for the iPhone and Android devices – instead of just giving them my business card or talking about it in person – I would send out emails with attachmentslinks to videos showing how great their product is.

Keeping the lines of communication open is crucial in any sales process. Click To Tweet

The key to more revenue for both parties is having a bigger market and an active customer base, which your employees will provide.

When you use the internet to target these people, your sales will increase. This is because there are so many individuals on the web looking for products that help them solve problems. When they find what they need, online customers buy it.

Channel Sales and all the Questions to Consider

How do you make your partners successful?

There needs to be a clear answer on this because it is the foundation of any partnership. You could either enhance their offering or you can add diversity into their portfolio, which will allow them to get discounts for every sale they make.

What role does the partner play in helping you make money?

Sometimes it is more profitable to focus on sales by yourself rather than managing the relationship with a customer. You need to look at all costs of maintaining this type of connection, along with how much revenue you can expect in return.

What are the benefits of this position?

When selecting a sales partner, consider if they have an established customer base that will buy your product or service. Consider their expertise in the market you are targeting and how much marketing reach they have.

Question 4: How can we get the customer to trust us?

When you work with partners, they may not be willing to let your reps or support engineers talk directly to the end client. It is important that this line of communication stays open because it allows for both parties (you and the partner) to grow.

Direct Sales and all the Questions to Consider

How does our product or service work for every client?

If you offer additional services to customers, then they may need partners in the area who can provide these locally.

How much will it cost me to sell the product internally and how does that compare with what I would need to offer through a channel?

If the cost of sales is significantly higher than that which you are getting in your channel discount, then it might be time to reconsider how much commission or what sort of customer service reps you have.

Question 3: How much money do we have to dedicate to the development and management of an in-house sales team?

If you are a smaller company, or if your sales target multiple markets, it may be difficult to recruit and manage an in-house team. This is because of the high cost associated with recruiting new employees.

Question 4: Do we have a direct line of customer feedback other than sales?

Beyond surveys, you need to be proactive in asking your clients what they want and giving them a sense of the impact their feedback has on company decisions.

Final Takeaways

Finding the right sales channel or mix of channels can be difficult.

Different markets may require a different approach for the same product, and some channels will not work at all when your company is just starting out. Click To Tweet

As your company grows, you may have the ability to reach out directly and connect with customers. This could save time on finding a distributor or partner.

Need Help Automating Your Sales Prospecting Process?

LeadFuze gives you all the data you need to find ideal leads, including full contact information.

Go through a variety of filters to zero in on the leads you want to reach. This is crazy specific, but you could find all the people that match the following:Ā 

  • A company in the Financial Services or Banking industry
  • Who have more than 10 employees
  • That spend money on Adwords
  • Who use Hubspot
  • Who currently have job openings for marketing help
  • With the role of HR Manager
  • That has only been in this role for less than 1 year
Just to give you an idea. šŸ˜€



Editors Note:

Want to help contribute to future articles? Have data-backed and tactical advice to share? Iā€™d love to hear from you!

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Justin McGill
About Author: Justin McGill
Justin McGill is the Founder of LeadFuze - a lead generation platform that discovers new leads for you automatically. Get 25 leads free.