You’re in charge of a fast-growing company who has relied solely on Channel Partners for sales and distribution. Your product is complex, and requires an on-site Sales Rep to understand each customer’s unique buying criteria and requirements. Back when you first started, you couldn’t afford the expenses associated with a direct Sales organization- the sales overhead, supplemental expenses, and extra heads on the payroll didn’t jive with a company trying to keep lights on. You reached out to Channel Partners, who saw the value in your product. They offered reach and scalability and their costs were variable; nothing upfront. It was great partnership. You brought as many on as you could.
Now you have a different problem. While revenues are growing, margins are stagnant. You look at the income statement and realize you are giving a healthy percentage of each sale to the partner. Now the thought emerges, “Can I sell directly to my customers?” Also, many of your channel managers in the early days are stagnant. They still collect a healthy service fee from sales long ago, but they have moved on to other products.
Every successful small company CEO and CSO will eventually come to this crossroad: Going from a direct or indirect sales model to a combined (direct and indirect model). However, you want make sure you perform like Apple, and not like RIMM .
Here is the key question you want to ask when switching to a direct channel:
Is the ROI I’m expecting from a direct Sales Force significantly higher than the current Channel Partner performance?
Here are two key lifts that come from switching to a direct sales force:
1) A higher close rate than a channel partner. All things being equal, your direct Sales Org should have superior product expertise and training, since they are only focused on one product. Their product knowledge, and adherence to a formalized, cohesive Sales Process can be easily enforced by management, making them a more effective unit.
2) The ability to serve your best customers more effectively
The first leap we often see with a younger company to the direct Sales Force starts with a National Account team. From a strategy perspective it makes sense—you want your company near your best customers. If I can get my products and services ingrained in the organization, I’ll achieve lower attrition and higher Average Sales Price by delivering exactly what they are looking for.
While these Direct Sales attributes may be highly desired by your company, remember who got you to where you are. Before you launch a new Sales force, communicate with your channel partners on this initiative and establish tight boundaries (Product, Industry, or Customer Size) to ensure that their interest is protected as well. Also, another best practice is a deal registration program to avoid future channel conflict.
Key Takeaway: Many of the best organizations in the world have had to cross this chasm, but make sure it makes sense from a financial perspective, and go in with a tight gameplan to avoid sales channel conflict.
Whether you are setting quotas for your field sales reps or your best channel partners, make sure you understand best practices. Attend our Webinar with Josh Meeks on May 10th.