Article

What is channel sales? Sales channel strategy and guide

Learn how selling through partner companies provides opportunities for expansion, revenue growth, and brand marketing.

By Donny Kelwig, Contributing Writer

Published October 19, 2021
Last updated October 20, 2021

Companies of all sizes want to increase revenue. But at one point or another, all revenue growth is hindered by time. Even if sales reps sold a product every second for 24 hours a day, that productivity would hit a limit. You then have two choices: hire a larger sales team, or enter a channel sales partnership.

Most companies choose the second option to save time, cut costs, and expand their market. With 63.5 percent of companies reporting increased annual revenue from channel partners, channel sales is a concept worth exploration.

In this piece, we’ll discuss what channel sales is. We’ll also cover why it’s important, how to implement it, and how to sustain partnerships once they’re in place.

What is channel sales?

Most people are already somewhat familiar with channel sales, as they make up around 75 percent of the world's sales and consumer market. Channel sales is simply a sales strategy in which a parent company sells products through another company. Depending on the relationship between these companies, the other company is referred to by different names: partner, distributor, affiliate, etc.

Channel sales is also referred to as indirect sales, which we will expand on in the next section. We will also explore why sales channel strategy dominates the market.


How do channel sales differ from direct sales?

The difference between direct sales and indirect sales (or channel sales) is the distance between the product and the customer.

In direct sales, the creator of the product (or the vendor) sells directly to the customer and gains all the profit. A great example of this is the local mom-and-pop bakery. The products are made on-site by the owners of the business, and transactions are made directly to the customers.

With channel sales or indirect sales, vendors outsource to other companies, primarily for larger distribution. For example, L’Oreal Cosmetics has a website with detailed information about their brands and products. But you can’t place an order directly on their site—and you don’t need to. Most L’Oreal customers are perfectly happy to buy the products at a discount through Target, Amazon, or Walmart.

Types of sales channels

Sales channels come in various shapes and sizes. It’s important to understand what types of sales relationships are out there before starting a partnership.

Here’s a breakdown of the most common sales channels:

  • Resellers: Resellers purchase products from the parent company and sell them to the customer at a different price point. Example: StubHub ticket reseller.

  • Affiliate partners: Affiliates receive a commission from the parent company in return for sales based on marketing promos. Example: Influencer promotions.

  • Distributors: Distributors serve as the middleman between the parent company and the customer in exchange for a percentage of the sales. Example: CVS.

  • Independent retailers: An independent business not tied to a parent company.

  • Dealers: Retailers who specialize in one specific type of product. Example: Car dealer.

  • Agents: Individuals who oversee the negotiations between buyers and sellers in exchange for a percentage. Example: Real estate brokers.

  • Consultants: Consultants manage the creation and productivity of different sales channels and are paid by the parent company. Example: Boston Consulting Group.

Why use channel sales?

Channel sales may not work for every company, but they do carry significant advantages over purely direct sales. The largest advantage is in affordable distribution.

By partnering with different sales channels, small companies can grow their businesses without the expenses of hiring and onboarding an in-house sales team. Larger companies can also use channel sales to get a better handle on their sales by analyzing each channel instead of looking at all sales across their entire market.

Additionally, channel sales can create trust through product endorsement, increase revenue growth efficiency, and give customers access to product bonuses.

We now know the what and the why of channel sales. So, let’s take a look at how your business can create and manage them.

Sales channel strategy and business model

If you’re going to dive into channel sales, the first step is figuring out the purpose of your future sales channels. Don’t invest time and money in channel sales without a clear directive. Otherwise, those resources will go to waste.

Craft a statement of purpose for your partnerships, and make sure it aligns with your company’s overall values and goals. Once you identify your purpose, it’s easier to see what kinds of partnerships would benefit your company and which business model you should use.

What is a sales channel strategy and business model?

There are three main strategies in choosing a partner. Each one can be facilitated by a variety of sales channels depending on how your company works.

  1. Increased sales reach. This strategy looks to expand your customer base. That could mean working with a distributor for geographical expansion, an affiliate for advertising, or a consultant for marketing. No matter which channel, the focus lies on partners who already work in your target market.
  2. Increased distribution. This strategy aims to increase the speed of your delivery and customer support. Ideal partnerships for this could be a reseller or distributor, an independent retailer, or a dealer. The key is that you have inventory that needs faster management.
  3. Combined solutions and maintenance. This strategy mutually benefits both companies by increasing the value of each one’s products. For example, a catering company may partner with a beverage service company to provide both food and drink to events. This increases sales for both companies because the client can purchase them as one bundle.

Choosing the right strategy for your company will keep you on track for a successful partnership exploration.

How do you implement a sales channel strategy?

Implementing a channel sales strategy is all about creating a partnership sales plan and keeping it consistent for each addition to your team. Just like with hiring employees, you want to make sure each team member gets the same offers, the same benefits, and the same training.

In the next section, we’ll go through the individual steps of implementing your strategy and building your channel sales program.

Building a channel sales program

Starting a new channel sales program takes time and structuring. Once you have your strategy set, the focus shifts to finding the right partners. Then, you’ll need to build those relationships and incorporate your new partners into your team.

Below, we’ll walk through the process step-by-step with best practices and considerations.

Step 1: Finding the right partners

Finding the right partners

Finding a channel partner involves a lot of the same qualifiers as lead gathering. It also requires pre-determining how the perfect partner would align with your business, which means considering their values and which markets they serve.

Here are a few qualifiers to consider when evaluating a potential channel partner:

  • Do they add to your product? A partner should bring something to the table you don’t already have. This might be increased distribution or more accessible packaging. The important thing to remember is that whatever added value they bring, it must contribute to the product’s potential to increase sales.
  • Are they aligned with your market? A partner with a radically different market than yours will have an extremely difficult time trying to sell your product. For instance, a company focused on organic produce probably shouldn’t partner with a bulk-selling company, because the produce might end up going to waste.
  • Are they up to speed on your company’s products and tech? All partnerships will initially require some level of training or support. Make sure you thoroughly understand their current capabilities so you can determine if it’s actually worth the investment.
  • Do they follow the same sales process? Your upselling, negotiations, price points, customer acquisition, and customer service outlook are all crucial parts of your brand. Make sure your partners see sales in a similar light as you do. Otherwise, you’ll risk losing consistency, which may cause issues down the road.

Step 2: Connecting with partners

Connecting with partners

Sales channel benefits go both ways. As you begin connecting with potential partners, it’s essential to have a clear outline of what your expectations are. But you should also be prepared to provide them with a full portrait of what they can expect from you.

This means being ready to answer questions. Your outreach team should know what kind of partnership your company is searching for, what your onboarding package looks like (which we’ll discuss below), and ultimately, what sales expectations come with the proposed partnership.

The key is to keep it simple. Seventy-three percent of partners say parent company channel programs are too complex, so state your offer succinctly and assess interest with an honest outlook.

Step 3: Recruitment

Recruitment

Sales channel recruitment can happen in two ways: inbound recruitment and outbound recruitment.

With inbound recruitment, potential sales channels come to you. This might be through your company’s reputation or a partner request form on your website. Inbound recruitment requires little work on your part, but it doesn’t always yield the partners that best fit your needs.

Outboard recruitment requires more of your time and money but allows you to seek out the partners you want to work with. That speeds up the time frame of adding a partner to your team.

Step 4: Onboarding

Onboarding

Onboarding new channel sales partners is just as important as onboarding new employees and should follow many of the same steps. Your partners likely have more business experience than a fresh sales rep, but they still don’t necessarily know your business inside and out.

Once you’ve chosen a partner, don’t lose time getting them set up. Ensure your partners have immediate access to training in products, features, pricing, sales process, and your company’s goals for a long-lasting partnership.

Establishing a strong relationship early on makes the partnership more likely to succeed. It also creates a model for open communication so that measuring sales channel status is easier down the line.

How to measure channel sales programs

Measuring the success of a channel sales program can be complicated because you’re analyzing the metrics of two related but distinct companies. The key is to predetermine specific metrics to measure internally for each company and overall as a partnership.

It’s also essential to run regular evaluations on partnerships to see where they are holding strong and where they may need work.

KPIs and success metrics

Companies have good and bad fiscal years independently of their affiliations. So, it’s important to collectively choose a few individual KPIs or metrics to track in regards to the success of a given partnership.

Here are a few you might consider:

  • Annual sales pipeline
  • Quarterly pipeline
  • Annual gross revenue
  • Annual total marketing funds
  • Gross revenue percentage in comparison to other affiliates

Maintaining and strengthening partner relationships

The easiest way to nurture your channel sales partners is to create a support strategy right from the beginning.

Here are a few ways you might build on your sales channels:

  • Offer market development funds (MDF)
  • Provide prepackaged campaigns
  • Establish a partner advisory board
  • Create a joint business plan
  • Co-invest in sales reps with your partner
  • Celebrate partner success
  • Provide an incentives program (63 percent of businesses with channel incentive programs use gift cards as a cash equivalent)

Remember, your partner will have their own business stress to manage, plus other vendors to work with. It’s easy to see your company as the priority from the inside. But it takes time and effort to create that feeling in partner companies. Stay organized and on top of what your partners need, and you’ll be on the road to success.

How Zendesk can help you create and manage your channel sales program

Your channel sales program needs organization, adaptability, and clear communication. Zendesk Sell is here to help. Our CRM software and contact management software make it easy to manage partnerships and stay on top of your sales pipeline.

Our interface is also partnered with hundreds of tech companies and platforms, so integrating your tech with a new company is a painless process.

Whether you’re considering expanding your company with a sales channel partner or wanting to create a better management system, request a Zendesk demo to see how our software can help you achieve your goals.

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