When starting a business, one needs to consider how they will get the products to their customers. Will it be sent directly to them from the website or brick-and-mortar store, or will a third party, known as channel selling, be enlisted that will handle the orders? These are called direct sales and indirect sales.
Indirect sales are when businesses use channel selling networks that act as intermediaries, like a middlemen, to sell to customers instead of directly going to them. Direct sales, on the other hand, go straight from the seller to the buyer. A good example of a direct sales business is Apple. Almost all Apple products are bought from an Apple store or their online website.
Many companies use a mix of both direct and indirect sales since some customers prefer to buy through the channel and others prefer to buy straight from the manufacturer.
Direct Selling Pros
One pro of direct selling is that the entire life cycle of the product, from manufacturing through final sale to the customer, is handled completely in-house. Therefore, the different steps in the process are in constant communication with each other. This also helps with any problems or complaints with the products. Companies are able to find and identify issues, since they hear the complaints from the actual client in their reviews. Another added benefit is that all sales proceeds return to the companies’ pockets instead of being split between the business and the third-party vendor.
Direct Selling Cons
This type of sales initiative can be expensive for a company. They need to cover the cost of everything associated with the creation of the product, such as distribution, shipping, maintaining the physical store and online presence, and hiring and training an internal sales force to manage everything.
Channel Selling Pros
A third-party vendor takes care of the distribution of the products when a business utilizes channel selling. This allows owners to focus on other areas, such as product development and operations, which helps to take the burden of selling from the internal team and allows employees to focus on other work. An added benefit of this method is the opportunity for easy and rapid growth of the product and service lines; it allows the chance to focus on the quality of the goods and services while growing revenue.
Channel Selling Cons
If someone prefers to stay in control of day-to-day operations, this is probably not the right choice. The third-party handles the display, advertising, shipping, and so on for a cost; the business itself will not see 100% of the profits. Third parties ask for a percentage of all goods sold, so they get a cut of the profit before it’s dispersed to the business owner.
When it comes to choosing the best option for a business, it really comes down to what works for the owner and how they see their business progressing. Are they looking to be independent, fully owned, and in charge of choosing everything about the business, or are they able to hand over control of some aspects to grow rapidly? Direct sales stores start out smaller, since they need to build brand awareness to increase the traffic to their online and physical stores. Indirect sales offer the help needed to jump start a business, but this comes at an additional cost.
For specific questions or additional information, please contact Alonia Johnston. If you would like to talk to one of our professionals on any other business-related topic, please do not hesitate to contact a member of our Advisory and Business Consulting team.