Sales channels are the pathways for your products or services to reach and be purchased by customers. They range from having a direct, in-house sales team to utilizing online marketplaces to value-added resellers (VARs).

The idea of a channel partner making you money while you're out playing golf is no doubt appealing to any entrepreneur, but it's not always so simple. If you are a D2C CPG company, then channel partners like Amazon and Etsy may be the single best way to sell your product. If you're a B2B enterprise SaaS company, then your channel partners may field their own sales force and the issue becomes a bit more complicated.

First, it's important to note that sales channels and marketing channels may overlap, but they're fundamentally different. A marketing channel is how you get into the mind of your prospective customer. A sales channel is how a prospective customer purchases your product. For example, Instagram paid ads may be a marketing channel you use for people to learn about your product. If people click that ad and are redirected to buy at Amazon.com, then Amazon is the sales channel.

If you're targeting multiple customer segments, then you may choose to use different sales channels for each segment. For example, a product may have a B2B segment and a B2C segment. Your team may plan to sell enterprise B2B software packages (high $$$ deals) through a direct sales force, but rely on an online marketplace for smaller B2C deals.

An important consideration when evaluating sales channels is the customer relationship and how valuable that is to your business model. If your channel partner makes a sale, are you then able to directly send surveys to the end customer for feedback? If a customer has post-sale needs, like a warranty claim, return, or troubleshooting, then is it clear that you will own that or your channel partner will own it? 

Types of Sales Channels:

• Direct Sales: This is the most straightforward sales channel, where the selling organization sells directly to the customer. This typically involves an in-house sales team that works on outreach, lead generation, nurturing, and closing deals.

• Channel Partners or Resellers: In this model, third-party businesses sell the product on behalf of the original business. This is common in the technology industry where software and hardware manufacturers often rely on Value-Added Resellers (VARs) to sell their products to end customers.

• Distributors or Wholesalers: These are intermediaries who buy products in bulk from manufacturers and then distribute them to retailers or end customers. Distributors usually carry a variety of products from different manufacturers and are especially common in the CPG industry.

• Strategic Alliances or Partnerships: Businesses may form alliances or partnerships with other companies that have complementary products or services. These partnerships allow businesses to bundle their offerings or gain access to each other’s customer base, enhancing the value proposition and expanding market reach.

• OEMs (Original Equipment Manufacturers): In this channel, a company sells its components or products to another company, which then incorporates those items into its own products and sells the combined offering under its own brand.

• Online Marketplaces: A popular option for both B2B and B2C businesses. These platforms aggregate products from multiple vendors, providing customers with a wide selection and easy comparison shopping.

Incentives:

A key consideration for any sales channel is the alignment of incentives. Direct sales forces tend to expect commissions and online marketplaces normally charge fees and/or a small % of a transaction, but what about the other types of partnerships? Two select examples:

• A distributor or wholesaler wants to buy your product at a 50% discount to list price with the ability to resell it to consumers at 100% of the list price. You may think, "OKAY. I take a haircut on my pricing, but effectively they sell my product for me, I have no additional cost of sales, and they'll do much greater volume than I ever could alone." That may work great, but what if the distributor has overestimated demand and now wants to return product to you? What if a consumer wants to return a product? Will you handle the return or will the distributor?

• Let's consider an IT consultant that sells software to SMB's. The consultant has signed a partnership to sell your software as part of his business, but he has a similar relationship with several other software vendors.  How will you incentivize the consultant to push your product? Even if they don't sell competing software, have you provided the right financial incentive to make it worth their time to push your product onto new clients? Have you provided training and sales enablement material to the consultant so that they know your product inside and out? What if the consultant makes zero sales in year one, but still wants a retainer to cover their annual costs to train their people on your product and market it?

Making the decision to pursue the right sales channel is important, and changing your strategy is only as inflexible as the contracts you sign. Sales channels will directly impact your sales volume, financials, brand image, and customer relationships.

Let's say you've built a new B2B software product and you're trying to acquire your first 20 customers. You want to be as close to these customers as possible so that you can get feedback and iterate on your product. If that's the case, resellers or channel partners probably aren't right for you (yet). 

As a B2B company, you should consider that resellers and channel partners can be great ways to accelerate growth, but they likely won't be able to create it from zero. They are very good at selling third party software (why you chose them), but they're incentivized to make money and to have happy customers. If you don't have case studies or social proof, then it makes your product harder to sell because it's an unknown quantity. On top of that, the reseller doesn't want to risk their relationship with a loyal, happy customer on a piece of software that may negatively impact the relationship.

If you're B2B, then consider the case that resellers and channel partners are strategies to accelerate and speed up existing growth, but not to create it

Diversification

Diversifying across several sales channels may mitigate risk, but "spray and pray" doesn't normally work well when it comes to running a successful business. There is a cost in terms of time and money involved with each choice. As an example, let's think about online marketplaces:

• Time: Each marketplaces will require an initial profile to be set up and then potentially maintenance down the road as you update your product details and marketing materials. If you've spread out across ten marketplaces, how often are you updating your product or company information there? Do you have to constantly make updates to make sure you're in the top search  results on any given platform? How do you handle customer reviews in each marketplace?

• Money: Marketplaces are generally not free and typically they charge the seller. Some are pay to play (i.e., you pay 3% of the list price to the platform only when an item is purchase) or some have a list fee (i.e., $2000/yr to list your software on a platform) or they may do both. A $2000/yr investment to sell your enterprise software on a platform may sound like a deal when compared to the cost of a SaaS sales rep, but if the math is that easy - why aren't all of your competitors doing the same?

• ROI: You want to feel confident that the investment into the marketplace is worth it. Can the marketplace sell enough product to generate a positive ROI? In the B2B software space, there are a lot of companies (normally startups) trying to launch the next big platform business. This means that there is a growing number of options in the space and ultimately a lof of these marketplaces will fail to deliver. This is something I've found to be very common in the B2B software space selling into the US Department of Defense (DoD). There are several publicly funded marketplaces as well as some stood up by the DoD with the intent of helping get innovative tech into the government, but unfortunately these marketplaces don't produce results.

Building Successful Partner Channels - This book is based on software channel partnerships, but provides excellent BP/LL for anyone looking to establish a network of channel partners.

Samples T's & C's for an SAP PartnerEdge VAR Agreement