Channel or Direct Sales: Should You Cut Out the Middleman?

The shortest distance between two points is always a straight line. However, selling directly to your customer instead of developing an indirect sales channel isn’t just about cutting out the middleman and keeping all the profit for yourself. It’s about considering the pluses and minuses of going it alone.

Selling direct may sound like the most profitable way for a company to do business, until you consider the costs that go into selling this way. Let’s compare Microsoft and Apple.

For the most part, Apple sells direct. Although they use some third-party wholesalers and resellers, the bulk of their sales come from their online and retail stores, and direct sales force. That means they have overhead and personnel costs for their retail and sales operations.

Microsoft, on the other hand, focuses on using channel sales. Otherwise, Microsoft would have to expand its business base to include a retail operation. That means adding brick-and-mortar stores and headcount to do the sales. Since Microsoft has higher revenue and double the profit margins (according to a 2011 article in ComputerWorld), it hardly makes sense for them.

For most organizations, it comes down to finding the right balance: direct, channel, or a mixed approach. Do you reach far and wide with channel sales or do you retain control over how your products are sold? Proponents of direct sales are more comfortable being in the driver’s seat.

Another consideration is your relationship with your resellers. Channel sales still require sales management. You may not have to train your own sales team, but you need to keep them abreast of product changes and updates. That requires you to develop a beneficial business relationship.

Establishing a channel sales force can actually lower your fixed costs, as you do not have to give any commissions until the sales is completed. You don’t have to give a base salary or benefits to your virtual sales force, the channel. Your variable costs will go up. Variable costs include commissions, sales incentives, management and training of your alliance partners.

Creating a channel can gain you tremendous market share quickly and grow your revenue. Picking the right partners is vital.

That’s where we come in. Developing strategic business alliances is our specialty. Finding the right strategic partners can help you develop an effective channel strategy. Contact us for assistance in identifying the strategic alliances that can help your business be successful.

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