Many people struggle to understand the differences between selling directly to customers and selling through a network of partners or two-tier distribution models. Although the list isn’t exhaustive, it will help you understand the differences between these models.
First, direct sales are exactly as it sounds. You sell to me. You purchase my product. The case closed. All inventory is my responsibility, and I have complete visibility into all stages of the sale process.
I can sell to either a partner who might sell to me or to a distributor who may sell my goods to a partner who then sells them to you. The distributor or partner can take title to my goods in this instance and keep them in stock.
Contrary to the direct sales model, I have minimal visibility at various stages of the sales process. I manage inventory that is scattered around the country and perhaps the world. I must sell my partners on my value proposition, get them to market and promote my product over any competitor’s products, as well as marketing to end-users.
Here are some examples of the challenges involved in managing channel sales.
Partner sales are what you have to pay your team. In essence, your team is measured on the performance of their partners in selling. This involves many things, such as getting data about your partners, getting POS data directly from distributors, and making sure that it is accurate and complete. It can be challenging to determine who you pay for a sale. Imagine a sale that goes through a New York partner, but the end-user customer is in Connecticut. The channel account manager and the partner worked together, while inside sales were with the end-user. Who do you pay? Paying the wrong person can also be a problem. Are you paying on sales in (God bless you if so) or sales out?
Channel conflict can be described as preventing one partner from taking advantage of another partner’s deal. This can be difficult enough. This can lead to conflict if your company has both direct sales and OEM sales teams.
Although channel partners and distributors have title to the company’s goods, many of these partners can return the goods within a specified time. Companies selling through the channel must understand their inventory and what their partners have in order to accurately recognize revenue. This is not a “nice-to-have” for finance departments, given all the new reporting requirements public companies have.
Another important aspect of channel sales management is price protection. Manufacturers will regularly introduce new products. Existing products will be reduced as a result. A reseller or distributor who purchased the goods at an old price is almost always entitled to “protect” the product against the cost decrease. Understanding the inventory situation is crucial.
Special Pricing Requests
Partner salespeople have the same problems and needs as direct sales staff members. They may find themselves in a difficult situation or have to charge a special price for large volumes. How do you manage a large number of partners?
Good partners that support a manufacturer’s products are expected to receive support in return. One way that companies can show their support is to make co-op (or marketing development funds) available to the best partners. These funds are to be used by partners to generate demand/leads. Two major management problems are involved. The first is to get, approve and budget these requests. It’s a massive undertaking. It amazes me every day how labor-intensive this process can be in large companies.
Understanding the benefits of spending is the second problem. Effective programs require understanding the ROI of each channel partner. This is something I have never seen done right. It’s amazing how companies can spend millions or hundreds of thousands supporting channel partners but not knowing if it was beneficial on a partner-by-partner basis. Surprisingly all that is required to support channel partners with good channel SFA/CRM solutions and good POS data is good to channel data.