The debate over the merits of direct versus indirect sales is older than the IT industry itself. Organizations have been wrestling with the pros and cons of each approach since before cars started rolling off assembly lines. But when it comes to IT products and services that tend to be consumed as part of more complex solutions, it’s clear that indirect sales made via channel partners is the most efficient model.
In fact, there are several benefits to indirect sales made via the channel that organizations can’t ignore. They include:
It takes on average six months for the average sales person to even begin to become productive.
Building a direct sales force takes time. Given the cost of hiring salespeople full time, it could easily be a year or more before organizations start to see a return on that investment (ROI). Channel partners, on the other hand, have salespeople in the field that are capable of closing deals in a matter of weeks, with the right training. Most have long established relationships with customers that trust them. The truth of the matter is, most investors don’t have the patience required for a direct sales force to come anywhere near fostering the same degree of trust and respect. In the IT sector especially, most customers are not all that interested in having a relationship with a salesperson that is narrowly focused on a small number of products and services.
IT solution providers provide vendors with an ability to scale at a rate of speed that can never be matched by a direct sales force. There are very few things more frustrating than having a terrific product nobody knows much about.
Channel partners make it possible to spread the word to precisely all the right people as quickly as possible.
At a time when rivals can copy new innovations in a matter of months, the amount of time an organization gets to maximize product innovation can be measured in weeks/months rather than years. A strong channel allows an organization to maximize the investment required to create that innovation in the shortest amount of time possible. Best of all, channel partners enable IT vendors to drive sales on a global basis in a way that simply can’t be matched simply relying on a direct sales force.
From the size of the sales force to the amount of money invested in marketing, the building of a channel enables IT vendors to treat almost every sales and marketing function as a variable cost. In contrast, a direct sales force not only require IT vendors to incur significant payroll costs, they typically need to make available a range of additional benefits that on average cost as much as 20 percent of each full-time employee’s salary. Another frequently overlooked area of cost involves logistics. Distributors that support solution providers have extensive logistics networks that IT vendors leverage as a service that eliminates the need for them to build out their own network of warehouses.
Conventional wisdom holds that the downside of a channel is the need to share profit margins with partners. But as solution providers become more services-centric, many are not as interested in profit margins as they once were.
Today there’s more focus on the services revenue opportunity any product a partner resells can enable.
That services drag is where most successful partners generate most of their profits. The result is that IT vendors who pick the right partners can minimize the margins they share with partners on the product, so long as they are helping that partner generate high-margin services revenue opportunities.
Organizations that sell directly typically need to invest a lot more in marketing than those that rely on an indirect sales channel. The reason for this is that there is no ecosystem in place to amplify their marketing messages.
In contrast, channel partners collectively create a massive echo chamber that serves to amplify every marketing messages.
That capability is especially critical when it comes to marketing using social media platforms.
Solution providers provide a precious resource for market intelligence. They typically engage more end customers than any direct sales force could ever hope to match. That information when properly mined can provide vendors with critical insights that inform future product development and corporate strategies. The surest path to success to solve a customer problem. Channel partners provide a crucial filter for uncovering those needs using some of the most experienced field personnel on the planet.
The channel doesn’t always get the recognition it so richly deserves when it comes to making IT vendors successful. IT vendors rely on channel partners as their primary go-to-market vehicle because it’s been shown to work time and again.
The issue now is not whether to employ the channel, but rather how best to build and optimize one.
We invite you to watch an overview of the platform we designed to automate the management of the channel. Once you see what’s genuinely possible using a modern channel automation platform, we’re certain your confidence in the ability to build and manage a channel will increase by several orders of magnitude.