Channel and direct sales are majorly the two different sales & distribution methods most businesses use. They are used for the same purpose but yield different results for businesses.
In this article, we’ll learn what exactly differentiates these two terms and their pros and cons, along with answering some insightful questions about channel sales vs. direct sales.
Bonus takeaway: You’ll even learn about the points to consider while selecting one of the sales methods for your business.
So, let’s get started!
- What is direct sales?
- What is channel sales?
- Channel sales vs direct sales: Key differences
- Pros and cons of direct sales strategy
- Pros and cons of channel sales strategy
- Channel sales vs direct sales – How to choose the right sales model?
- Frequently Asked Questions (FAQs) on channels sales and direct sales
What is direct sales?
In direct sales, the company bypasses the intermediaries and directly sells to the consumers.
Direct sales is also known as a zero-level distribution channel as there are only two parties involved – The seller & the buyer.
The saying “the shortest distance between the two points is a straight line” exactly describes the direct sales method.
You can observe the direct sales model in Apple, as it has its own store where consumers can visit and purchase products.
Hence, while practicing direct sales, you need to build up a direct sales team that can easily reach your target audience.
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What is channel sales?
Channel sales use different channels to complete the sales process. In the channel sales model, the company partners up with certain mediators to sell their products.
You can also term it “indirect sales,” as you don’t sell the products directly to your consumers. It works in a pattern where the manufacturer uses a middle man (in the form of an individual or an agency) to make their products available to the customers.
For example, Coca-Cola uses the channel sales method, as you will only find its products available in retail stores.
Channel sales mediators are of various types, mainly –
- Referral partner
- Affiliate partner and many more.
The channel sales partner usually provides a more comprehensive business reach to reach your prospective buyers.
Channel sales vs direct sales: Key differences
Now that you know the two approaches, let’s get in-depth information on direct sales vs channel sales with the table below:
|Channel sales||Direct sales|
|Channel sales involve third parties in the sales process||Direct sales don’t include any external party in the sales process|
|Channel sales don’t involve direct customer interaction||Direct sales involve direct interaction with customers|
|In channel sales, the profit is shared by the channel partners||In direct sales, the principal business enjoys all the profit by itself|
|Channel sales are beneficial for large enterprises||Direct sales are profitable for small enterprises|
|With channel sales, you can eliminate the in-house sales team||With direct sales, you need to have an in-house sales team|
While direct sales help you to connect directly with your customers, channel sales enable you to scale your business.
After learning about the difference between channel sales vs direct sales, you can understand how these two approaches can be suitable for different business types.
Well, every sales strategy has pros and cons, so let’s learn about them first.
Pros and cons of direct sales strategy
While the direct sales process seems simple to execute, it has its own benefits and drawbacks. So, let’s take a look!
- The entire product lifecycle, I.e., from manufacturing the product to making it available for the final consumer, is handled by one manufacturer. This allows the owner to have complete control of the sales process.
- Direct sales have one of the most significant advantages that allow you to stay close to your customers. This enables you to receive unfiltered feedback from your direct users.
- Another advantage of adopting direct sales is no profit sharing. Since you carry out the whole process by yourself, you can enjoy all the profits by yourself.
- Choosing a direct sales method makes you liable for your own revenues. Hence, there’s no dependency on external parties.
- Direct sales have easy adaptability to the dynamic sales process. Since all the process is taken care of by an in-house team, making the changes as and when required is easy.
- Limits business scalability as there’s a direct contact between the manufacturer and customer.
- It becomes difficult to expand in new markets as the manufacturer cannot interact directly with customers in multiple markets at a given point in time.
- It would help if you had a target-driven in-house sales team, as their actions will ultimately decide your sales volume and revenues.
- Since all the process is taken care of by the business itself, it becomes very costly for the company to run the operations. This includes shipping, distribution, and other activities contributing to the sales process.
Based on these pros and cons, we can determine that direct sales strategy is mainly implemented by small businesses.
Pros and cons of channel sales strategy
Below are the main pros and cons of channel sales strategy that you need to be aware.
- Channel sales benefit you by adding effective scalability. Having multiple channel partners allows you to reach maximum customers.
- You can generate maximum revenues without accommodating an in-house sales team. 63% of companies have reported increased revenue from channel sales partners.
- One of the benefits of having channel sales is that it is cost-effective. Channel partners have a good grip on the local customers and other market factors. This makes the sales process very cheap for a manufacturer.
- Channel sales are one of the best methods to expand in new markets. Partnering with local vendors to sell your products is relatively less expensive than entering the market by yourself.
- Channel sales remove the burden of sales activity, allowing your sales reps to focus on other business operations.
- As there are various contributors to sales completion, it is evident that the profit is distributed among these mediators. Hence, profit-sharing is a drawback for the principal business owner.
- There are various partners involved in the sales process. Now, this gives enough room for the mediators to sell the product in their own way. Hence, there’s a lack of control over the sales guidelines.
- The partners may not always be transparent in terms of disclosing the sales volumes or revenues. This could be a significant reason for the lack of accuracy of sales reports.
- Another drawback of implementing channel sales is hiring a channel sales manager. Hiring a manager would reduce your risk but again adds up to accommodating an employee, increasing your costs.
These are the pros and cons of implementing a channel sales strategy. Based on these points, it’s evident that the channel sales process is ideal for medium and large-size businesses.
While there is no hard and fast rule for adapting a sales method, you can always analyze and choose the one that best fits your business.
Channel sales vs direct sales – How to choose the right sales model?
Once you’ve learned about channel sales vs direct sales, it’s time to identify and implement the right sales channel.
There are two main factors that you need to keep in mind before choosing the right sales model for your business –
1. Enterprise size
While both channel sales and direct sales have their own contribution to sales growth, you must consider your business size before settling for one.
You want to achieve profits to sustain your business as a small enterprise. Small business owners constantly interact with their customers to identify their problems and address these concerns directly.
With honest customer feedback, you discover enough scope to work on your product. This process of engaging with your customers and nurturing them ultimately leads to higher customer satisfaction.
Hence, you are advised to adopt direct sales as a small enterprise.
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As a medium or large-sized enterprise, you not only want to achieve significant profits but also acquire markets. As a company with offices or a presence in different localities, it is ideal to go for channel sales.
Also, if your product needs some value-addition, you can adapt it for value-added channel partners who’ll do the same for you.
By adapting channel sales, you can spend more on customer service and increase your customer base than on the sales process.
Hence, you should adopt channel sales as a medium or large-sized enterprise.
2. Business goals
Suppose your business aims at spending more on product development than the channels. Or aim to directly interact with your users to understand their problems in detail and address their concerns appropriately.
In such a scenario, you as a business owner should practice direct sales to accomplish these goals.
Whereas if you aim to operate in multiple locations without spending much. At the same time, you don’t want to accommodate an in-house sales team and go all out when talking about sales.
In such scenarios, you should adapt channel sales.
Channel sales may seem complex as you need to operate in different locations. However, with the right CRM software, you can manage your business operations from one place.
Moreover, your channel sales team can also connect with customers in different cities through virtual phone numbers.
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Frequently Asked Questions (FAQs) on channels sales and direct sales
Is channel sales B2B or B2C?
B2C businesses primarily use channel sales. However, there may be a case where channel sales are used for B2B business, like a raw material manufacturer may have channel partners to make his raw material available to the final product manufacturer.
What is an example of channel sales?
Some of the best examples of companies that adopted channel sales are L’Oreal cosmetics. You can only purchase their products through a retailer.
What is an example of direct sales?
SaaS products are the best example of direct sales. Salesmate, Boeing, and Amway are companies operating through direct sales methods.
What are the types of direct sales?
There are mainly three types of direct sales methods as follows:
Direct sales vs channel sales is always a topic of discussion for businesses as both of them are the two most popular methods businesses use. They yield different results based on different sectors and modes of implementation.
The key features of the channel and direct sales serve as the major differentiators. It is possible that these methods may more or less be beneficial at different stages of your company’s evolution.
If you need software to manage your business process, Salesmate is the right choice. Whether you’re implementing direct sales at the initial level of your business or opting for channel sales as your business grows, you can manage every process from Salesmate.
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