Why Channel Sales Management is Different

I run into many folks who try to grasp the difference between managing a sales team that is selling direct to customers versus a team that is focused on selling through a partner network or two tier distribution model. The list below is not exhaustive, but it is a good place to start to understand how the models are different.

First, the direct sales model is just as it sounds. I sell to you. You buy my product. Case closed. I manage all the inventory myself and have visibility to all stages of the sales process.

In the indirect or channel model, I sell to a partner, who may sell to you, or I sell to a distributor, who sells to a partner, who sells to you.  In this case, the distributor or partner takes title to my goods and can hold them in inventory.

Unlike the direct sales model, I have limited or no visibility to stages in the sales process. I have inventory scattered across the country and possibly the globe that I have to manage. I have to sell partners on my value proposition and get them to market my product over competitor’s products they may carry in addition to marketing to end users.

Here are just some of the complexities of managing channel sales:

Sales Compensation

You have to pay your teams on partner sales. So, in essence, you are measuring your team on how well the partners they work with are selling. There are many issues involved here, including getting partner sales data, getting POS data from distributors, and making sure it is all complete and accurate. Who you pay for a sale can be problematic. Let’s say a sale goes through a partner in New York, but the end user customer is in Connecticut. Inside sales worked with the end user, but the channel account manager worked with the partner. Who do you pay? When you pay is also a potential problem.  Do you pay on sales in (God help you if you do) or sales out (sell-thru to end user).

Channel Conflict

One version of channel conflict is preventing one partner from stealing a deal another partner is working. This is tough enough. If your company has direct sales or OEM sales teams in addition to indirect sales teams, this can make the potential for conflict even worse.

Inventory Management

Even though channel partners and distributors take title to a company’s goods, most of those partners these days have the option to return the goods within a certain amount of time. This means that not only do companies who sell through the channel need to understand what they have on hand, but they also have to understand what their partners have on hand to accurately recognize revenue. Given all the new reporting requirements for public companies, this is no longer a “nice to have” but a must have for finance departments.

Price Protection

Price Protection is another very sticky part of channel sales management. Regularly, manufacturers will introduce new products. As they do, existing products will be discounted. If a distributor or reseller partner has bought the goods at the old price, they are almost always entitled to be “protected” against the decrease in cost. This makes understanding the inventory situation mentioned above even more critical.

Special Pricing Requests

Partners have the same needs and problems as direct sales team members. Many times they run into a competitive situation or large volume deal that requires some special pricing. If you have 100s or 1,000s of partners, how do you manage this in a way that doesn’t require hiring on a bunch of people to run pricing decisions to Sales VPs?

Channel Spending

Good partners who support a manufacturer’s products expect support in return. Making co-op or marketing development funds (MDF) available to the very best partners is typically one way companies show this support. Partners are supposed to use these funds to create demand/leads. There are two big management issues here. One is just getting, approving and budgeting these requests. It is a huge undertaking. It never ceases to amaze me how manual the process is for this in most companies, even those that are large. 

The second issue here is understanding the benefit of the spending. Understanding ROI by channel partner is critical to running effective programs. I have yet to walk into a customer who has this handled properly. It is truly amazing that companies will spend hundreds of thousands or even millions per year supporting their channel partners but not know whether it did any good on a partner by partner basis. Surprisingly, all it takes is a good channel SFA/CRM solution and good POS data. 

For the uninitiated, hopefully this post has provided a primer for understanding some of the difficulties in managing channel sales vs. sales in the direct model.

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