A channel sales strategy allows you to leverage the help of third parties to sell your products and services. Channel sales strategies are usually deployed as part of your business growth effort. Channel sales can help your business grow in three key ways:
- To reach new customers who don’t buy directly from the vendor, preferring instead to buy from consultants or resellers
- To sell products through third-party marketplaces and managed service providers, which may offer package deals to customers and appeal to buyers looking for different product options and deals
- Channel sales programs can help you find business in new geographic regions
While there is no right answer and channel sales isn’t for everybody, sometimes the best way to level up is by exploring partnerships and connecting with people or other businesses who can indirectly sell your products or services on your behalf.
What’s key, however, is that if you have a direct sales initiative, your channel sales doesn’t cause any conflict with it. That’s why you should aim your channel sales at the target markets and demographics that your direct sales team can’t reach. A company will always benefit from well designed, complementary direct and channel sales programs.
In this guide, we’ll break down everything you need to know about adopting a channel sales model, when doing so makes sense for your business and provide tips for finding the right partners to work with.
Table of contents
- What is channel sales (definition)?
- What are the advantages of channel sales?
- What are the challenges of channel sales?
- What types of channel models are there?
- How to implement a channel sales strategy
- Confirm you’re in the right stage for channel sales
- Make sure your partners are a perfect fit
- Empower your partners to do well
- Consider hiring a channel sales manager
What is channel sales (definition)?
A channel sales strategy involves using partners and third parties—such as referral partners, distributors, managed service providers, marketplaces or value-added resellers—to sell your products or services. This is a contrast to a traditional, direct sales strategy in which your company’s sales team is solely responsible for selling products to customers.
“While direct sales relies on your reps to grow your business, adopting a channel sales strategy can give you more boots on the street, enabling you to access customers who typically would not or cannot buy directly from the vendor,” explains Pipedrive’s VP of Channels Sales & Partnerships Scott Fraitianne. “This creates new revenue streams over time.”
A successful channel program can significantly increase your revenue, but there is no autopilot setting: You have to work closely with your partners to make sure they are deploying the correct plans and strategies.
Partners and reps sell differently, often requiring different messaging, marketing assets and more. You need to enable your partners to sell your product by giving them the training, tools and assets they need, which in many cases will be different from what your direct team is using.
With channel sales, a growing business can explore new income and revenue streams outside of and in tandem with their in-house efforts. Note that even if you do adopt an indirect sales strategy, you should still consider developing your direct sales team if you want to get the best results.
What are the advantages of channel sales?
If you’re on the fence about letting someone else sell your product or service on your behalf, you’re not alone. It’s difficult to relinquish control and there’s always a risk of losing brand authority if a partner misrepresents your brand.
That said, there are many benefits of letting a partner sell for you. Here are some reasons why companies adopt a channel sales model (we’ll explore the disadvantages in the section immediately after).
Scale your business (even if your internal resources are limited)
Allowing referral partners to attract leads and get your products in front of them can be a fast way to acquire new customers and speed up your business growth.
However, other channel sales programs are not always faster to set up than direct sales programs. For example, value-added resellers can take six months to a year to onboard fully, and most channel sales partners will need frequent training as your product develops.
The right channel sales strategy, however, can enable you to grow very quickly? In the case of Alex Rampbell, current General Partner at Andreessen Horowitz, it meant taking a startup from zero to 10,000+ clients within two years. Rampbell notes that channel sales helped him attract long-tail clients or clients that had a deep need for his product or service but were difficult to find and thus sell to.
Channel partners can help you expand your network by getting your product or service in front of those long-tail clients you’d otherwise have trouble reaching. Once you amass several long-tail clients through channel sales, they could end up making up the bulk of your revenue.
Still, you will need to onboard channel sales partners and train them accordingly, which will take some time (though considerably less than direct sales onboarding initiatives). More on how to effectively do that later on.
Enter new markets and expand globally
If you’re a North American company looking to expand into the EU region, you probably want to work with someone doing business in Europe.
A local partner in a new region knows the target market better than you do, already has an audience in your preferred space and understands the business culture. Taking advantage of this is key when attempting to broaden your brand reach and acquire new leads, prospects and ultimately customers.
“Channel programs are a low risk and low cost approach to opening new geographic regions where a company does not have existing resources, or where they want to test or establish the market,” expands Scott.
Introduce your products to different customers
Whether it’s going global or getting your products in front of a specific demographic, partners can help.
Retail companies commonly rely on channel sales to expand their brands. Consider that 70% of shoppers are interested in shopping both in-person and via e-commerce platforms. It would make a lot of sense for an up-and-coming brick-and-mortar store to get their items featured in an online shop to expand their revenue streams and reach a wider audience—especially as many stores have had to close in the wake of the COVID-19 pandemic.
Some software buyers rarely purchase products directly from a company. In fact, 37% of medium-sized businesses prefer buying through resellers or managed service providers according to one survey. Channel sales can be used to reach these buyers, who otherwise may never have come across your product.
Save serious money on distributing, shipping and web hosting
Dealing with distribution and shipping is often tedious and time-consuming, not to mention expensive. Through certain channels, you can offload these costs on your partners that already have the existing infrastructure or an established presence in your target market.
For example, big box retail stores, like US stores such as TJ Maxx, Home Good and Marshall’s, all owned by TJX Cos. Inc, sell products and merchandise from channel partners. Their entire business model rests on buying items from supplier and vendor partners and then selling them via their popular retail (and online) locations. This is a great opportunity for suppliers or vendors that are looking to grow their customer base and expand their reach by getting their product or merchandise in big name stores.
TJX Cos, Inc. brands not only use channel partners to source the items they sell in their stores, but they also use channel partners to distribute their products and merchandise to their many retail locations. Rather than hiring, training and maintaining a distribution fleet of their own, they use the services of partner companies that already have a fully functioning distribution chain. This saves TJX Cos, Inc. tons of time, money and operational oversight.
Boost your company’s reputation and name recognition
There are also digital equivalents, such as Amazon Web Services and Samsung AppStack, which are marketplaces that sell software and apps from channel partners. These channel partners benefit in a number of ways:
- Their products have a wider audience
- They save on online administration costs and fees
- Their own websites get backlinks from well-known companies
If you’re a growing business, partnering with established brands creates a sort of halo effect for your company as you rub shoulders with bigger names in your industry.
For example, any tech company in the US that has their products featured at Best Buy or on NewEgg.com boast some serious credibility versus companies trying to sell software independently.
Forrester is predicting that 17% of the $13 billion B2B industry will be spent in marketplaces by 2023.
Empower your sales reps to focus on their strengths
So much of managing a sales team means making sure that your reps are actually able to do their jobs effectively. Rather than overwhelm them with unrealistic quotas, a channel sales strategy takes some of the pressure off your in-house team and sales operations.
This also allows your reps to spend more time talking to and building relationships with customers directly. You never want to stretch your reps so thin that they sacrifice building and nurturing relationships with their prospects, as that will end up hurting your business’s credibility as valuable relationships decay.
Offer services for complicated products
Value-added services, such as consulting, customer success and professional services, are a vital part of many businesses, especially those that produce and sell software.
However, it’s often expensive to maintain, and although there are many advantages it can sometimes be difficult to quantify the added revenue.
The right partner will provide services for the people they bring to the company, guiding them through how best to use the tool and highlighting common challenges.
Channel partners are essentially salespeople, marketers, service providers and brand advocates rolled into one.
What are the challenges of channel sales?
Although channel sales have the potential to transform an up-and-coming business, there are still some potential challenges to consider.
Less control over your business as a whole
This downside is two-fold. For starters, as much as you vet and train them, you can’t completely control what your indirect sales force says or does when they interact with customers. While you should obviously try to work with people you can trust, having your company’s reputation tied to a third party can be stressful. If they slip up or make a mistake, you may have to deal with the consequences by proxy.
You’re also giving up some control in the sense that you can’t effectively manage your entire sales lifecycle. Conventional wisdom says channel sales should boost your bottom line, but this isn’t guaranteed depending on your revenue shares and the performance of your direct sales.
Revenue sharing means fewer profits
Through channel sales, partners obviously take a cut of your sales profits. Whether it’s 10%, 25%, or 50% (and sometimes more), losing out on profits that would otherwise be all yours from direct customers can sting. That said, you’re likely to save money in the long-run when it comes to on-going customer support and account management. After all, 75% of something is better than 100% of nothing.
Reduced time spent directly with customers
From feedback to product recommendations and beyond, your customers are a treasure trove of insights. Less face-time with your customers and end-users means less time actually talking to them and understanding their unique needs, challenges, pain points and desires—especially as channel sales partners are often unwilling to allow a vendor’s salespeople to contact their customers directly.
However, partners can provide not only customer feedback to the vendor, but also vertical expertise, functional expertise, competitive intelligence, beta testing, product roadmapping and more. As a vendor, you can set up Partner Advisory Boards that facilitate this feedback and insight gathering.
Avoiding these downsides ultimately depends on how you approach channel sales and who you partner up with. For example, you’re still in total control over who your channel sales partners are and what your revenue share looks like.
In short, adopting new sales channels doesn’t have to mean giving up control over your business.
For example, as Scott points out: “At Pipedrive, we constantly work to make sure that product releases are done in a way that enables partners and resellers to sell them out of the gate, confident that we have training and assets for partners ready.”
Though, of course, this does add extra costs.
Here is a rundown of the pros and cons of channel sales. As you can see, the pros outweigh the cons.
What types of channel model are there?
The good news is there is no one-size-fits-all approach to channel sales so you have plenty of options to explore. Here are some of the options open to you (some may look more or less attractive depending on your company size, industry and product):
- Referral partners
- Managed service providers
- Value-added resellers
Businesses both big and small can find partners through individual people and enterprise companies alike. Pipedrive’s own partner program is a great example of this.
Referral partners and affiliates are a popular sales channel for both SaaS and digital goods. The concept of a referral partner is simple: someone (a person or company) refers the lead for a sale to the vendor. The vendor in turn sells directly to the customer and pays the partner a fee when the sale is closed. These affiliates are responsible for marketing and promoting your product, only getting paid when they’ve scored a sale. The vendor maintains ownership and on-going management of the customer.
A software tool like ConvertKit is an example of what an affiliate program looks like in action, encouraging thousands of brand advocates to hype up their product and create a steady stream of sales as a result. Affiliate programs allow companies to boost their revenue and word-of-mouth at the same time.
Another avenue of channel sales to explore is using resellers, who purchase your product from you directly (in the case of a physical good) and keep the profits from what they sell themselves.
This isn’t to be confused with value-added resellers, which we often see in SaaS. A value-added reseller (VAR) adds features or services to an existing product and then resells it (usually to end-users) as an integrated product or complete “turn-key” solution.
This practice occurs commonly in the electronics or IT industry, where, for example, a VAR might bundle a software application with hardware they supply.
“The added value can come from professional services, such as integrating, customizing, consulting, training and implementation,” explains Scott. “Value can also be added by developing a specific application for the product designed for the customer’s needs, which is then resold as a new package.”
Companies can also work with distributors, marketplaces or individual retailers to sell (and resell) products. Whether you decide to sell to or through a partner is up to you. The former requires you to be more proactive by pursuing new partners, while having others sell on your behalf sets you up for longer-term, consistent profits.
How to implement a channel sales strategy
Chances are there are partners out there for your business. That said, implementing a channel sales strategy requires research and planning. If you want to adopt more sales channels, you need a process you can roll out and replicate for each and every partner or channel you pursue in the future.
Below are the key steps for doing exactly that.
Confirm you’re in the right stage for channel sales
Before hunting for partners, it’s crucial to reflect on whether or not you have the bandwidth for channel sales right now.
Despite popular belief, there is no minimum revenue goal or target for companies to reach to get started. That said, you don’t want to get in over your head or potentially disrupt your current sales process.
As a sort of gut-check, here are some basic requirements for companies thinking about channel sales:
- You have a defined, proven sales process that can be replicated
- You understand how to sell your product to your target audience and there’s enough awareness about your product for someone else to sell it, too
If you don’t meet these criteria quite yet, don’t worry: channel sales may still be an option. In fact, some partners may help you to develop your sales process or find the right target audience.
Pipedrive can help you figure out where you stand with all of the above. From sales targets to proving your company’s track record, our reporting features can help confirm when it’s the right time to expand.
Make sure your partners are a perfect fit
Depending on your business, you might feel like you’re spoiled for choice in terms of potential partners. On the flip side, finding the perfect partner might require you to do some digging.
Whatever you do, don’t just settle for the first person who approaches you and vice-versa. Develop an Ideal Partner Profile which is a list of attributes you seek in a partner that will give you the best chance for success. What a “perfect” partner looks like varies from company to company, and from geo to geo, but they should at the very least:
- Have a deep understanding of the audience you’re going after
- Provide a service or have subject matter expertise in an industry that compliments your own
- If they operate in a new market, works in one where you have potential for growth
- Have skills and resources to market and sell your product
Earlier we noted Alex Rampbell’s story of scaling his business from 0 to 10,000 clients via channel sales. According to Rampbell, finding a channel partner that compliments your services is the most important thing to making such a relationship work.
When in doubt, start brainstorming partners you’d ideally want to work with and likewise consult with people in your network. Much like prospecting, you need to know what role you want your partner to play and what your relationship should look like.
Entice and empower your partners to perform
Don’t assume that someone’s chomping at the bit to work with you. Once you find an eligible partner or vice versa, you’re going to need to spell out what’s in it for them in a way that empowers them to sell your product or service with the same vigor your direct sales team employs.
A competitive referral commission, or revenue share, or discount, can help compel partners to take your offer more seriously.
Keep in mind that both enticing and empowering partners center around education. This means teaching them about your product and what it does for customers. Resources such as webinars, tutorials, testimonials and product specifications can be a big help here.
You should also consider setting up different tiers for your partners. This will enable you to manage expectations with smaller partners and those with a wider reach. It can also help incentivize partners to drive more sales in order to move up a tier and get better benefits. Each tier will have its own requirements such as sales and technical certifications, sales and marketing training and product training.
Additionally, sales-specific resources such as personas, scripts (for calls and emails) and any past competitive analyses are invaluable in helping partners sell on your behalf. As well as your customer data—such as sales information, pricing information and demographics—your partners should have access to the tools they need to close your customers.
Consider hiring a channel sales manager
For companies that are serious about channel sales, bringing on a full-time channel manager(s) to handle partner relationships makes sense.
Doing so ensures that your individual partners get the attention they deserve to be successful. Usually reserved for bigger companies, channel sales managers are also responsible for providing resources to partners and keeping tabs on performance.
Below is an example of a channel sales manager job description for reference.
Prospect, identify and develop strong relationships with new and existing partner sales contacts
Collaborate with partners to develop partner-specific business plans which outline goals, tactics and KPIs that will be used to measure results
Consistently communicate with partner sales teams to ensure team is hitting and exceeding quotas and overseeing their development alongside the Head of Channels and Growth
Dynamically educate channel partners on our value proposition including selling best practices, technology solutions, platform roadmap, and operational and partner program changes
Identify and influence all levels of channel partner organizations, including sellers, operations, engineering, client support and executive leadership
Understand the positioning in target market and how that compares to our competitors to be able to lead thoughtful discussions on why partners should invest their selling efforts on our value proposition
Establish strong working relationships internally across direct sales and leadership teams
Provide deal strategy, support and resources to partner sales team to drive sales
Track and report on revenue and targets
Prepare and participate in weekly forecast calls and quarterly business reviews
Is channel sales in your business’s future?
Channel sales is a key component of business growth in just about every industry.
If you already have an established sales process and are looking to scale faster, don’t hesitate to start looking for partners to target different markets or demographics sooner rather than later.
Either way, make sure you have a handle on your business’ data and understand what your sales performance looks like every step of the way so that when you do decide to scale, either internally or with the help of channel partners, you’re ready to dive into the process headfirst.