One of the biggest challenges to scaling revenue? Your salespeople only have so much time. Even if you hire the most focused people, invest in tools that boost their efficiency, and remove all distractions, there’s only so many hours in the day that can be spent on selling.
Some companies choose to hire more representatives. While this might work, it is not the only solution. Additionally, recruiting, hiring, and employing salespeople is expensive and significantly decreases your profits.
So what else can you do? A channel sales model is an opportunity to have your products marketed and sold by a channel partner instead of hiring more reps.
What is channel sales?
A channel sales model is where a company sells its products or services indirectly through third-party partners. The types of third-party partners can include affiliate partners, resellers, value-added providers, or any other entity that is not part of the company.
There are many benefits to selling your products through a channel, but it might not be the right choice for your company. When making the decision to use a direct sales model over a more traditional model, it is important to carefully consider the advantages and disadvantages of each option.
Channel Sales Pros
If you adopt a channel sales model, there are many potential benefits. There are several benefits to reducing the size of your sales team, including increased trust, efficiency, and the ability to experiment and test new ideas quickly. Additionally, your customers are likely to be more successful. Let’s go over these one by one.
If your channel partner is already famous within a certain market or area, then you don’t have to spend time and effort trying to make them known. If your product is endorsed by someone, it will be seen as more credible.
With one channel manager working with multiple channel partners, you can generate as much revenue as you would with five or six salespeople, but at a lower cost. It’s often easier to enlist new partners than to find and train new salespeople, especially after you’ve ironed out the details of the program.
Rapid Testing and Experimentation
Channel partners allow you to test new customer bases, products, packages, promotions, and/or marketing campaigns in a low-stakes environment.
It is beneficial for companies to partner with vendors who offer things such as training, onboarding, and implementation support because it allows the company to be able to focus more on getting new customers without worrying as much about their current ones.
That all sounds great, right? Although channel sales have some advantages, there are also some disadvantages that should be considered.
Channel Sales Cons
Advantages of channel sales: -brings in new customers -offers opportunities for business growth -can be less expensive than other methods Drawbacks of channel sales: -limited control over how products are marketed -possibility of conflict with other businesses selling similar products
Less Control Over Sales
You’re not directly managing the sales process. Your representatives may not be able to take control if a partner is mismanaging a deal. The company might not have any input into when the deal will be completed, which can be frustrating and lead to unpredictable revenue.
If you partner with someone who has a bad reputation, you will look bad by association. It’s important to partner with a company that is known to have a good reputation and excellent customer service.
In return for bringing in and/or closing deals, your partners will get a share of the profits. Although you will earn less money from each individual sale, it is likely that it will cost less money to acquire each customer.
Harder to Manage
Making a big change in your sales strategy, messaging, products, etc. can be difficult. You’re not just making a change for one group – you’re asking multiple different groups to change too.
Slower Feedback Cycle
Your partners talking to your customers will result in you receiving feedback at a later time. Your feedback from your partners might not be accurate. They may use bad methods to gather or analyze the results, which could lead to a biased interpretation.
When your direct salespeople compete with your partners for the same business, things can become extremely chaotic and disorganized very rapidly. A representative who decides to exclude their partner from a deal because they don’t want to give up the commission is acting selfishly. If the partner told the client about the mistake, the client would be unlikely to want to work with that partner again. If channel partners are in conflict, it could damage their relationship and cause them to stop working together.
Channel sales vs. direct sales – what’s the difference?
The channel sales model means working with a third party to sell your product. In direct sales, all sales are generated by you and your team, and all leads come from your own channels. With channel sales, you are appointing distributors for your product who will introduce your product to their audience. In return for their work, they receive a minority share of the sales they bring in. This could be less than what you would spend selling directly.
Channel sales are more efficient than direct sales when it comes to generating more leads. Generating leads through your own channels or conducting outbound sales requires time and effort. Channel sales is beneficial because you are able to directly access a pre-existing group of potential customers without having to put in any additional work. It’s easier to expand into new markets and target a different demographic when you sell through channels.
Channel sales also bring in leads from a third party, which means that the time needed to close them is shorter compared to direct sales leads. Channel sales leads have an average sales cycle that is 28% shorter. This means that leads that come from third party sources are more likely to be interested in what you’re selling and have already been given some information about your product, meaning they require less effort to convert them into paying customers. In direct sales, leads that have been introduced into the sales funnel will need to be nurtured, and will go through a longer sales cycle.
When you sell your product through a third party instead of selling it yourself, you can make money from sales without having to put in a lot of your own effort. This way you can reach more customers quickly. This method is effective for products that have a high conversion rate and are able to retain customers at a rate above average, meaning the product is a good fit for the market. If your product is a good fit for the market, selling it through channels could be the best way to reach your next big revenue goal.
How to implement a channel sales model
Now that we know how channel sales work, we can go deeper and learn how to set up a channel sales process.
1. Channel sales readiness
Before you allow a third-party to sell your product, you should first make sure that your product is actually ready for that channel. If you are a young company that needs to find your first few customers, it might not be the right time to assign channel partners. This is because you might not have realized who your real (and potential) customers are.
If your product is popular with customers and has positive reviews, you can look for third-party channels where these potential customers are likely to be found.
2. Structuring specifics of the process
If you are ready to sell your products through third-party channels, you need to work on the specifics.
In order to increase revenue from channel sales, you will need to create a list of potential partners, calculate the revenue that each channel is likely to bring in, and establish incentive structures that incentivize sales. Each of these steps must be taken with the intention of achieving specific organizational and revenue goals. The way that you set up your company’s financial incentives for your employees and business partners (i.e. the “channel partners” that help you sell and distribute your product) is extremely important in ensuring that these partners continue to do business with you profitably.
3. Setting up processes
Before you can assign partners, you need to set up some processes to work with third-party leads. This could include having a sales funnel set up that is dedicated to handling third-party leads, as well as having a billing setup and onboarding flow that is ready to go once the leads start coming in. Landing pages, educational videos, pre-recorded demonstrations, and more can help nurture new leads and convert them to customers without sales assistance.
4. Partner outreach and onboarding
Now that you have internal processes in place, you can set up these channels to start generating leads. This would involve the logistics of outreach to partners and setting up channels. Reach out to these partners and sign up.
A channel can be set up on a marketplace or review website by following the platform’s guidelines for content, which may include screenshots, videos, and descriptions. Make sure there are mechanisms in place to help you measure conversions from a channel. You can tell your partners which specific UTM parameters you want to set for the channel.
How to find channel sales partners
Influencers and rainmakers
Look for people who are knowledgeable and respected in your field to endorse your products. “Rainmakers” are people who may be able to help you find and close new deals by making introductions and easing sales, in exchange for commissions on big-ticket sales.
You can get help from publications and blogs that cater specifically to your target audience for smaller ticket products. This allows you to have your products advertised on their pages in a way that is relevant to the page’s content and drives traffic to your website. Instead of purchasing advertising spots, you can become an affiliate of the publication to generate traffic and leads.
Complementary products and services
What other products do your current and potential customers use? You can join forces with these companies and market each other’s products and services to your respective audiences. If your products are integrated well with channel partners, it also drives up your retention and lifetime value metrics, which leads to more product usage.
There are platforms that can host your product in their marketplaces, such as product review platforms and device platforms. By being featured on these marketplaces and platforms, you can increase traffic to your website. Take SuperLemon as an example. In an interview, the founder said that their Shopify app generates 5,000 leads a month and has a conversion rate of 7.5%.
11 ways to measure your channel sales efforts
Channel metrics provide an indication of how well a channel is performing, helping you to identify which channels are most effective and worth investing in.
- Total leads generated by channel: Measures the total number of leads generated from a certain channel.
- Channel retention rate: Signifies the ratio of customers that choose to stay at the end of the cycle — in the case of subscription products.
- Channel customer NPS: Measures the average NPS from leads being generated from a channel.
- Channel sales cycle time: The average amount of time needed to close a customer originating from a third-party channel.
The conversion metrics of your channel sales efforts give you an indication of how many leads are being converted into sales. You can track the below metrics to keep a check on your channel sales conversions:
- Overall channel sales conversion rate: This is the overall conversion rate of channel sales as a revenue source for your organization.
- Channel conversion rate: Channel conversions help you measure the quality of the channel in terms of the percentage of its leads who end up buying from you.
- Gross revenue from channel sales: This metric helps you measure the total revenue that was generated by selling through channel partners.
- CAC for channel sales: CAC allows you to keep a check on the costs of acquiring or generating these leads through your third party channels.
Bottom line metrics
Essentially, bottom line, or bottom of the funnel metrics are a way of measuring the success of a company’s sales operations by looking at the amount of money generated. The goal of these methods is to measure the overall sales impact of channels and to monitor changes in channel quality and quantity.
- LTV per channel: LTV is used to measure the value of a customer closed from a Third-Party channel over their lifetime.
- Revenue per channel: Total revenue per channel helps you track a Third-party channel’s contribution to your channel sales activities.
- Net profit per channel: Net profit helps you measure a channel’s impact on your bottom line.
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