Channel sales, also known as indirect sales or partner sales, are sales facilitated through third parties instead of directly through a company’s sales team. These third parties may be agencies, influencers, or distributors. This is a common go-to-market strategy amongst B2B (business-to-business) software companies.
Channel sales is often a far more efficient system for driving revenue than direct sales, since the company doesn’t have to hire a sales team. Rather, the company only pays if and when partners make sales. Typically, partners are paid a cut of the sale, so it doesn’t require the same degree of overhead investment or risk as hiring and training an inside sales team.
That being said, to unlock maximum growth potential, many companies opt to use both direct and channel sales. Since partners will likely have access to different audiences than your sales team, it’s often worth investing in both. The programs are usually complementary as opposed to cannibalistic.
Example: Lavender Ltd. drove 30% of their revenue last year via channel sales, up from 20% the year before.
Cannibalism (also called product or market cannibalism) occurs when a product released by a company competes for market share with an existing product of theirs. The new product "eats" demand for the old, reducing sales and profit of their existing product. Some amount of product cannibalism is expected with new product launches, and companies normally consider the financial risks and rewards of releasing new products carefully.
Cannibalism can result in overall positive or negative effects on a company's bottom line, and can be either intentional or unintentional. When it's intentional, it's referred to as a cannibalisation strategy.
Example: Leo's team released a new file sharing software, but it soon became apparent that the demand for their other file sharing softwares was plummeting in favor of the new release. They'd caused cannibalism by putting out a product that ate up demand for their other products.
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A business initiative that drives revenue through established distribution partnerships rather than direct sales and marketing. Channel partnership programs are common in a wide variety of industries, including software-as-a-service (SaaS). Companies love channel partnership programs because they’re often a more efficient way to drive revenue than traditional sales and marketing tactics. Since partners are tasked with finding leads, referrals, and/or sales, company employees don’t have to generate these valuable business outcomes directly themselves. They simply have to enable partners to be successful.
Channel partnership programs have many benefits. In addition to being a more efficient source of growth, partnerships often help companies access new audiences through their partners. For example, a software company may have great traction finding new customers through paid search ads. But if they partner with an agency that has a roster of clients who are not as digitally savvy (and thus may not find the software company via Google), the company can access a new audience that they previously would not have been able to reach. What’s more, agencies often have built deeply trusting relationships with their clients, so a recommendation from the agency means prospective clients will be primed to trust the software company more.
Example: Rivka drove 45% Acme Corp’s FY2022 revenue through her channel partner program.
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