A Direct Sales Strategy Isn’t Right For Every Company–Here’s Why
Quite simply, direct sales is when a company sells its products and services “directly” to a client or customer. There are no outside parties, middle-men, retailers, or wholesalers involved as is the case with an “indirect” or channel sales strategy, just an internal sales team executing on an internal sales strategy.
When you consider that the shortest distance between two points is a straight line, it makes sense that cutting out the middle-men and taking a direct approach would be the best, most efficient approach to sales. Plus, any strategy that allows your company to keeps all of its profit rather than share and maintain full control of the sales process must be the way to go. But this isn’t always the case.
The deeper you dig, the more you can see direct sales is full of hidden (but also not so hidden) costs.
Coca-Cola and Apple recognize that direct sales isn’t for them
You can only imagine what it would cost a company like Coca-Cola to vend directly to its customers. That’s why when it comes to getting its products in the hands (or mouths) of its end customers, Coca-Cola sells through third-party “sales channel partners” like shops, supermarkets, and vending machines. This indirect sales strategy allows Coca-Cola to make a healthy profit and avoid the cost of a huge sales operation.
You can also take Apple for example. While Apple sells many of its own products online and in its retail stores, it also allows other companies to stock its products, especially as they became increasingly popular. This adaption of channel sales has allowed it to acquire a large share of the market, while still retaining some control over how individual products are sold.
Could it be time for you to recognize it too? Direct sales might not be the sales strategy for you
The fact of the matter is, a majority of companies engaging in sales today use indirect selling. While some companies rely only on indirect channels, some use it in conjunction with direct to drive a large sum of their overall revenue. Finding the right strategy (or mix of strategies) depends heavily on your product or service, industry, specific companies, and so on.
Direct sales strategy cons
Direct sales typically comes with high costs. Developing and managing a sales team is expensive. Consider the management and administrative overhead costs plus payroll, bonuses and other expenses.
Even more, a direct sales strategy can be difficult to scale. Scaling a sales team requires recruiting, training and onboarding of new sales reps. Depending on the length and extent of your company’s sales goals, this may not be ideal for you.
Plus, direct sales presents a rather high barrier for entry into new markets. Most times, entering a new market with a direct sales team means a new office and everything that goes along with it. It can be a fairly expensive endeavor when you compare it to entering a market through a network of partners who have an established presence in a particular market.
Instead, channel sales might be the sales strategy for you
When you compare the two, channel sales has benefits that direct sales can’t compete with.
Channel sales strategy pros
With a channel sales model, you’ll see lower sales, marketing, and distribution costs. Depending on your industry and other factors, your company could spend years (and potentially millions) building its own credibility in a market. But when you partner with a company who has built a name for itself in the market, is known and trusted by local customers, and is actively promoting its own brand and its value–your product or service can gain instant validity in the market.
In addition, when you’re able to build out a strong sales channel with respective revenue sharing, co-marketing efforts, incentives and other strategic variables, your company has the ability to scale its growth effectively simply by adding more channel partners into that mix. Talk about efficiency!
Moreover, because the cost of entering the market is low and efficiency high, a channel sales strategy is a relatively low-risk way to access and try out a new market. Testing opportunities are extensive and secure. You’re able to try new products, packages, promotions and campaigns without risking as much as if you were in it by yourself.
Who is the best fit for channel selling?
- Companies who may be on the smaller side looking to grow without investing in hiring and training a sales team.
- Companies with products or services that require a customer to purchase another product or service you don’t offer, but someone else does.
- Companies with products or services that are relatively easy for others to sell (as opposed to a company whose product requires time, money, and effort to get salespeople up to speed).
- Companies whose products or services are relatively cheap in which there is no point in hiring a sales team.
- Companies who have such a high demand, they simply cannot keep up with sales internally.
- Companies that find partners they can easily and efficiently leverage to sell their offering.
- Companies with sales goals that are longer in term.
- Companies whose internal human resources costs would exceed the cost of discounts for channel partners.
- Companies whose time and resources would be better spent on other efforts.
Generally speaking, these are the types of companies that are the best fit for a channel sales strategy. But that isn’t to say if you don’t fit into this criteria that channel sales can’t work for you. In fact, to help you determine for certain which type of sales strategy is best for you–we created a sales channel fit quiz. Find The Sales Strategy That’s Right For Your Business.
Nathaniel Smathers, a contributor to the Incentive Insights blog, brings a fresh perspective on business strategies and market trends. With a background in marketing and a passion for data-driven insights, Nathaniel offers a unique blend of expertise and creativity. His approach to dissecting complex market dynamics and transforming them into actionable strategies makes him an invaluable asset to our team.