Direct Sales vs. Channel Sales: 5 Factors of Comparison
Businesses are continuously looking to get their products out in front of their customers while adhering to a marketing budget. Maintaining this balance requires hiring a dedicated in-house sales team and developing a sales strategy that can attract new customers and close deals.
So, which strategy would best suit them? Direct sales or Channel sales? Or do they need to strike a balance between the two approaches?
This article will help you understand what direct sales and channel sales are and how you can use them effectively to grow your business.
What are Direct Sales?
As the name implies, direct sales involve direct selling between a seller and a consumer without any third party involvement. The B2B sector often favors direct sales since sellers can communicate with their clients directly in a non-retail environment. Apple is one such example of a direct sales strategy, as consumers generally buy their products directly from Apple’s website or stores.
In 2019, direct sales alone enriched the world economy with over $193 billion in total sales. The direct sales industry includes over 118.4 million representatives worldwide. 59% are in Asia, 26% in North and South America, and 12% in Europe.1
What are Channel Sales?
Channel sales refer to selling products on the market by building partnerships with third parties to gain a more extensive reach. It provides excellent leverage to businesses as it includes resellers, distributors, value-added providers, and other channel partners.
Numerous businesses favor this strategy to get their product or service in the hands of more prospective buyers. Examples of partnership programs that utilize channel sales opportunities are Hubspot, Slack, and Salesforce. Advantages of channel sales also include profitability, as it spares you from the cost of maintaining local marketing operations.
Understanding the Pros and Cons of Direct Sales and Channel Sales
Choose the right sales strategy for your business to determine the best way to sell your product or service and maximize profits. Let’s dive into analyzing the pros and cons of each strategy.
Direct Sales vs. Channel Sales
1. Control over sales – The best part of the direct sales strategy is you get to control the entire sales process, from manufacturing to sales to the end-users. You can manage the sales pipeline without third party interference; how you evaluate your customer services communicate with the customers are up to you.
On the other hand, channel sales involve third parties in the sales process and the outcome of the sales opportunities. This inclusion of a third party can make it difficult for a company to predict revenues and impact the team’s price strategy.
2. Feedback from customers – Direct sales allow a direct line of feedback about your product or service because you are selling directly to the customers. Direct sales help you iterate quickly, saving the cost of upgrading products later in the cycle. The manufacturers can communicate regularly with consumers while obtaining valuable information from their clients.
Channel sales involve a whole other team needed to collect the feedback. Thus, making the iteration process slower and more costly for the company if any valuable feedback gets missed.
3. Splitting profits – When you sell directly to the customer, all the sales profits return to the company’s pockets. You don’t have to share the revenues with a reseller, channel partner, or a third party vendor when you go with direct sales.
Channel sales involve sharing the profit. Usually, it’s a percentage of the sales revenue for generating leads, depending on the partner and the value they provide to the company.
4. Cost and time – Because direct sales include developing and making an internal sales team, it may turn out to be very expensive. The company needs to cover everything associated with the product, such as shipping, distributions, prepping the sales representatives, and administrative expenses such as payroll, bonuses, etc.
Considering the sales team’s cost and process, businesses that outsource sales can benefit more from channel sales. This strategy doesn’t involve great sales and distribution. It also allows you to focus on the other important business areas, such as product development and operations.
5. Entering new markets – Entering a new market through a network of local partners is a relatively expensive endeavor. Thus, hiring new talent and preparing them may result in a substantial upfront cost. A third-party vendor may have better expertise in using outbound tactics to penetrate new markets through channel sales.
Channel sales allow companies to expand and enter new marketers without worrying about building and training a sales team. You can readily scale up and scale down as per the need to accommodate new customers.
What is the Right Strategy for Your Business?
Keeping sales pipe full and generating leads all on your own can be challenging. While direct sales have their benefits, incorporating channel sales can further business opportunities. At Red Sky Blue Water, our team of experts helps companies handle outbound lead generations. We keep you in the loop at all times so you can interact with us while maintaining control of your business.