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When scaling revenue, all companies have a challenge with hitting the numbers of sales they plan for. Even when they hire some of the most focused reps, invest in all the right tools and set guidelines in practice for the most efficiency, there's only so much their reps can sell during the say.
When you look closely at some of the most successful companies, it becomes obvious that they have a diverse portfolio of channels to deliver goods to their customers. Along with solving the scaling problem, it also buffers their sales from a sudden disruption.
Channel sales, one way of indirectly distributing products to the market through third parties, have become enormously popular over the years. Forrester estimates that 75% of the world's trade flows through indirect means, i.e. through third-party partners.
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What is channel sales?
Business market and sell their product through avenues called sales channels. Most businesses generally use a mix of direct and indirect sales channels. Businesses are said to use direct sales channels when they sell their products through their means or an eCommerce platform.
Indirect sales happen through third-party intermediaries to reach their customers. These include wholesalers, retailers and distributors. Channel sales fall under indirect sales; companies sell through third parties. Most companies use a combination of direct and indirect sales for maximum reach.
Apple, for example, sells its products through its retail outlets and uses third-party retailers such as Best Buy. The difference between channel sales and sales channels is that the former is a practice of using intermediaries to sell while the latter is avenues for selling. Although all channel sales involve sales channels, all sales channels are not channel sales.
What are channel partners?
Channel partners are organizations or individuals who can broader the access of the company to a wider customer pool. Through channel partner sales, companies can reach customers they would need help to get.
An example is companies that are trying to sell their products overseas. By partnering with foreign retail chains and distributors, they are able to cut through the red tape and get their products moving.
Channel partners constitute third parties such as distributors, agents, consultants, affiliate partners, resellers, retailers and value-added providers. They are all people who sell the product but don't work directly for the company.
What makes a good channel partner sales?
As we saw earlier in the Forrester estimate, channel partners bring plenty of value to companies without the added cost of direct selling. However, not all channel partners are suitable for all companies and neither is having too many channel partners. Here are some of the attributes that make great channel partners:
1. They possess technical expertise
Good channel partners understand your product's technicalities and can handle some of the responsibility when customer support is needed. A partner who is inexperienced in the domain or is dishonest can cause damage to your reputation.
2. They are aligned with your market
Channel partners operating in the same market as you are well-positioned to generate more sales than others. For example, if your business manufactures educational toys for children, you will do well by finding partners with an audience that's predominantly kids and teens.
3. They have a complementary product
If your channel partner sells complimentary products to your line of business, then it's a win for both. If you manufacture hose and pipe clamps, a plumbing company or hardware dealer would be a great channel partner.
4. They have a similar sales process
The business can run much smoother if you and your channel partner have similar sales processes. When they're selling complementary products online, through affiliates, agents or stores the sales process can open up lots of upselling opportunities.
Tips to build perfect channel sales strategy
A robust channel sales strategy is key to excellent channel sales management. Here are seven tips on how to do that:
1. Attract the right partners using relevant and useful content
Publishing precise content designed to target your desired partners can go a long way in attracting them. For example, if you are a company that manufactures carpentry equipment and raw materials, publishing eBooks with content published specifically for machinery operation and maintenance will attract the right channel partners. Channel partners who recognize you as the authority in the subject would want to work with you to meet the demand from customers.
2. Work on the partner's needs
To have a profitable and successful long-term relationship, the channel sales strategy should work as well for your partners as it does for you. They will only work with you if it benefits them somewhat. Therefore, figure out what their needs are and how you can help improve their business by selling additional services, capturing new markets or improving the value of their offering.
3. Decide on the model your channel sales partnership will have
The model of your partnerships can be set in three different ways. First, you can work together with your partner on the products or services you're selling. For example, if you own an auto service centre, your partner can run the car wash next door.
Second, you can sell with the help of your partner. Departmental stores are a prime example of this kind of partnership, and they often put together items from a wide range of sellers. If you find someone who sells predominantly in your niche, they can be a great fit for your business.
Third, your channel partner can sell on your behalf. These partners incorporate your products into their line of offerings. Sometimes the customers may need to learn the name of your company. A great example of this model is the store brand of supermarkets. Almost always manufactured by an independent company that packages the products on the store's label.
When it comes to the method of the channel sales partnership, you can pick the one that works best for the two of you. Companies often operate in two or all models to maximize their sales.
4. Maintain an open line of communication with your partners
Communicating frequently with your partners shows them your dedication towards building the relationship and the business. If they don't often hear from you, they would be less likely to show interest in your program.
They would also miss out on essential updates, the latest news and strategic announcements that would create inefficiencies in sales or bumps in the road. Staying in touch with your channel partners through regular email, Facebook groups, slack rooms, webinars and office meets keeps them in the loop and the partnership strong.
5. Motivate and support your partners throughout
What makes channel sales so challenging is that partners can lose motivation over sales, and there's little you can do about it. Unlike your full-time sales reps, which can be motivated through performance plans to meet sales quotas, underperforming partners can become hard to motivate.
To get your partners to sell at their best, you need to establish a support system in the form of help and content they would need to become confident with your product. Since they're more unfamiliar with your product than your sales reps, they would need twice as much content and support.
To ensure your partners can perform at their fullest, give them material such as comprehensive manuals, customer testimonials, examples, competition comparisons, scripts, email templates, objection-handling cheat sheets and more. All of this material will have them as prepared as your own sales reps to sell your product.
6. Offer additional rewards
Although the commission they earn is enough reward, some people need more to get motivated to perform better. Additional reward systems for your best-performing partners can create 'superpartners' which bring in a lot of value.
If you work with multiple partners, there's likely a tier system for partners performing at different levels. So depending on their tier, you can offer them tickets to exclusive events, advanced marketing support, strategic consulting, a premium listing in the directory, a feature in the newsletter and more.
7. Leverage channel partnership platforms
When you're working with channel partners at scale, spreadsheets just won't cut it when it comes to keeping them engaged. You'll need a platform that can effectively have all your channel partners on one dash where you can see their performance and shortcomings and assort them into tiers. With such a platform, it becomes possible to connect with your channel partners fully and even make it fun through gamification and extra rewards.
A comprehensive platform such as Compass can take care of all your channel sales management needs and do it on a simple dashboard. Do Your partners need to do better? You can figure out the issue with analytics and find the best solution. The platform also allows you to celebrate and showcase achievements to others to keep the drums beating.
How to measure channel sales performance?
Now that you have a channel sales strategy in place, it's time to look into how to measure the results of your efforts. Here are 4 key indicators that show channel sales performance:
A few key profitability metrics can be measured to determine the effectiveness of partner programs. These numbers give a definite view of how your strategy is performing:
- Difference in Customer Acquisition Cost (CAC) for direct vs. Channel partners
- Customer retention rates for direct sales vs. Channel partner sales
- Difference in up-sell and cross-sell rates for direct sales and sales partners.
2. Training & performance
Taking up your training and certification initiatives is an excellent opportunity for partners to become better at selling your products. A good strategy that works reflects in the following:
- The number of partners using the training collaterals you have offered.
- The number of partners attending training events and other optional opportunities.
- The number of partners who have attempted/completed the certification.
3. Success rates
The success of business coming from your partners is an indicator of good alignment with the partners. These numbers are:
- Total number of registered deals from the partners
- Percentage of partner deals that were accepted
- Number of partners who registered a lead in the last month
4. Partner performance
Your partner's performance can be measured in 4 parameters:
- Revenue opportunities
If your relationship with the partner isn't producing adequate revenue opportunities, they are not a good fit.
- Strategic advantage
This measures how many new opportunities your partnerships will open up for you. Would your partner bring a strategic advantage in customer loyalty or new market opportunities? These are some of the metrics that show an excellent partner's performance.
- Operational performance
This indicates the milestones reached by your partner measured as the number of staff members trained, customer visits, and the number of staff members trained and certified.
- Relationship health
This measures how well the dynamic between you and the partner is. Because it's one of the "soft" things, it's harder to measure. However, good relationship health is an indicator of long-term partnership and success.
Benefits & drawbacks of channel sales
There are plenty of Benefits and some when it comes to channel partner sales. Here's a breakdown of how it works:
Benefits of channel sales
Here are four reasons why channel sales are great for you:
- Reduced sales and marketing costs
Your channel partner already has an established segment of customers willing to buy. This translates into big savings for your marketing and sales efforts.
- Increased efficiency
Small companies and start-ups who lack the budget to hire elaborate sales teams can cut down their costs through channel partners. A single channel manager instead can handle multiple partners and deliver the results.
- Rapid testing & experimentation
Channel sales allow brands to enter new markets and rapidly test the performance of their products and services. They can also easily experiment to determine the best market fit without much risk.
Drawbacks of channel sales
Channels sales do come with their own set of negatives you need to look out for:
- Less control over sales
Unlike the control you have over direct sales, channel partners do not work for you directly, and hence you have no control over their sales habits, behaviours or priorities. This can also lead to poor revenue forecasts and challenges in planning.
- Brand risks
If you want to establish a brand, it's essential to choose your partner carefully, as negative experiences can quickly tarnish your brand image. The same applies to big brands.
- Reduced profits
Considering all the advantages they bring you regarding saved costs and increased market penetration, partners would demand a bigger cut. This could significantly lower your profits.
How to determine whether the channel sales is right for you?
While it has plenty of benefits, the channel sales model is only an approach some businesses would want to implement. It becomes essential to consider many factors such as your margins, products, state of the company, sales process, operating procedure and others. How can you determine whether channel sales is right for you? Here are 4 major factors:
1. Scale of the company and maturity
Small companies that don't have the revenue to have dedicated sales teams can leverage channel sales to get their products off the ground. Once they have scaled enough, a dedicated sales team can take over or work with sales partners.
Established companies can use channel sales to penetrate a new market. However, it might come with some challenges.
2. Product maturity
Products that have yet to make their mark on the market can do well by taking advantage of the direct customer relationship. Channel partners in that way can be an excellent place to experiment with features and changes that will make it a good fit in the long run.
3. Sales process maturity
Unless you have a fine-tuned sales process to your product and market, it isn't easy to train your channel partners. A mature sales process has several elements, such as customer stakeholders, buying triggers, average sales cycle length and other parameters figured out. Such companies are also in a good place to train their channel partners.
Businesses scattered across multiple cities can do well by adopting channel sales, and it helps them cast a wider net and avoid appointing multiple sales teams.
5. Revenue demands
Revenue is one of the most significant factors to consider before picking channel sales. Since it takes a while to set up a channel sales system with reliable partners, it must be attempted depending on your industry. For some, starting with direct sales and scaling is better before choosing channel sales partners.
Channel sales come with benefits and drawbacks that need to be weighed before you start a partner program. Successful channel sales management begins with the strategy employed with program deployment and the partners you choose to work with. An effective channel sales program works both ways to benefit you and your channel partner.