Channel sales

Channel sales means that a maker sells through other companies, not directly to every buyer. Distributors and resellers sell the equipment. A distributor usually buys in bulk from the maker and sells to resellers, and a reseller sells to the buyer. System integrators install the equipment and connect it to the buyer's other systems. This lets the maker reach thousands of buyers without having its own sales team in each city.

Here is how it works in general. The maker signs agreements with partners and gives them a price list, training and sometimes the right to sell in an area. A partner buys the product from the maker at a discount and sells it to the buyer at a higher price, keeping the difference as its margin. A system integrator adds services, such as installation, setting up and support. The buyer deals with the local partner, and the maker deals with a smaller number of partners.

Partners provide what a maker cannot easily provide from one office: a local presence, the local language, credit for buyers and installation. There are things that can go wrong. The maker loses direct contact with the buyer. A partner may also sell a rival's product. Two partners in the same city may cut each other's prices, so makers define territories and ask partners to register each deal. A partner's margin differs by product and by volume.

Take, for example, a company that makes security cameras. A local reseller in Nagpur sells them to a school, and an integrator installs them and connects them to the school's video management software. Consider a maker of industrial controllers. It sells through distributors and integrators, who program the machines for a factory. Imagine a software firm that sells through partners who set up and support the product, as with managed service provider platforms.

Channel sales is common in technology, networking and security. It is linked to aftermarket services, since partners often provide the service, and to installed base, since partners keep the relationship with the buyer. The maker must treat its partners fairly, which is handled by distributor management tools.

How is it different from direct sales? Direct sales means the maker's own employees sell to the buyer. Channel sales means an outside company sells and installs, and the maker supports that company.