Indirect sales are the sales of products or services of the company performed by partners. They are opposite to direct sales made by the company staff. Indirect sales allow companies to sell more products and services without extensive network of sales staff. The indirect sales can be less profitable, because of discounts for partners, however that can be compensated by smaller human resources costs.
The difference between direct and indirect sales is noticeable. Direct sale is mostly generated by original service providers and product manufactures, at the same time indirect sale is provided by a third- party such as reseller, affiliate or system integrator etc. Methods and systems of direct and indirect sales channels are completely different.
There's some companies in the market that rely only on indirect channels. Also for most of the companies indirect sales are major driver of revenue. (Kokemuller N. 2018)
It is very important to integrate direct and indirect sales channels to maximize sales results. Recently indirect sales channels feel the pressure, because of a big competition and high popularity of online sales. (Macula A. 2018) The best invention is a method when buyers and sellers of services or goods engage in commerce. It's a method of requesting, selling, quoting and purchasing services or goods through a user interface, for example web browser that provides users with an option to select direct or indirect sales channels for services or goods from a single purchase. (Maged A. 2006)
There are some benefits and problems according to indirect sales, first benefit is that the companies do not need to hire additional sales people. On the other hand, when there's a lot of sales happen through third-party then the company does not have a control over brand image.
Who needs indirect selling?
We can divide companies using indirect selling into 3 categories:
- Companies that have very low price of the products and there is no point in hiring sales personnel.
- Companies that have such a high demand on their product that they can't deal with it by their own.
- Companies that see efficient channel of indirect selling that is available in the market and can be leveraged to their advantage. (Macula A. 2018)
Four types of indirect sales agents
There are four types of indirect sales agents:
- affiliates - sells for a commission,
- resellers - similar to affiliates, usually tech products,
- independent sales representatives - easy to scale up or down,
- system integrators - usually B2B contacts. (Kokemuller N. 2018)
Person or a company that sells the product takes a commission for every sale made. Percentage of the commission depends on a seller and the company. It is popular for the company to raise a price of the product for the percentage that they need to pay to the seller. Affiliate sales are popular online, mostly third-part intermediaries match providers with affiliates. Producer can invest in banners, Google Ads or other tools to create traffic and increase brand recognition. Then the affiliates promote products and solutions by their website, social media and their marketing lists. Important aspect is that key benefit is that the cooperation with affiliates is based on effect – sales made. (Seifert R. Thonemann U. Sieke M. 2006)
Reseller buys a product for a specific prize, mostly lower than a market price, because of the big quantity of the products that he buys. Next reseller increase the price of the product and sell it as his own. The partners drive a 10-20% margin or percentage of a profit to every sale. Reseller programs are smaller in scope than affiliates, but it is very similar. Reseller partners focus on promotion to make a sale, it is very popular in software industries and technology hardware. One of the companies that use reseller program is Apple company, they rely on their partners to promote their products through all promotion channels for example face-to-face, services online, paid campaigns. (Rudnick A. 2007)
Independent sales representatives
An Independent Sales Representative is known as a Manufacturer's Representative, he represent your product line or your service in a specific region. By using independent reps, the company can reduce amount of staff in sales department. They can also cut costs on office management and travels. Independent sales representative is also paid on a commission basis. Independent representative serve as a company's marketing, outside sales and customer service. The company needs to cover commission, sales materials, training and payment schedule. It is very common to invest in independent agents in insurance industry.
A system integrator (SI) is a company that advertise “solutions” to customers, mostly in B2B system. System integrators specialize in system integration, which is defined as the process of bringing together sub-systems into one system. To deliver the overachieving functionality of the system, it needs to be aggregation of all the subsystems. System integration is also a process of linking together different software applications and computing systems physically or functionally that need to act as an integrated whole. IBM is a business consultant that helps business customers to find perfect technology solutions for them. They often include different software and hardware components in integrating tech solutions. Information technology (IT) departments hire outside systems integrators, because they need help with upgrading or building a computer application. The SI looks for highly involved and dedicated partners that fully support the company in assembling and delivering to customers systems of top quality at agreed competitive prices and at the promised delivery date. (Middel R. Fisscher O. 2007, p. 8)
- Kokemuller N. (2018) Examples of indirect sales Small Business.
- Macula A. (2018) 4 Benefits of an Indirect Sales Channel and How to Leverage Them How about sales.
- Maged A. (2006). Method and system for automating proposals involving direct and indirect sales Patent Application Publication no. US 2006/0041496 A1.
- Middel R. Fisscher O. (2007) Managing and organising collaborative improvement: a system integrator perspective International Journal of Technology Management, 8.
- Rudnick A. (2007). Method and system for providing direct and indirect sales channels for goods or services from a single point of purchase Patent Application Publication no. US 7,295,989 B2.
- Seifert, R. W., Thonemann, U. W., & Sieke, M. A. (2006). Integrating direct and indirect sales channels under decentralized decision-making. International Journal of Production Economics, 103(1), 209-229.
Author: Dominika Ogórek