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What are Indirect Sales?

David Gargaro
David Gargaro

Indirect sales can be an effective way to increase your footprint without hiring additional staff.

  • Indirect sales occur through a third party, such as a partner, affiliate or distributor.
  • Businesses rely on indirect sales to grow sales without hiring additional sales staff.
  • Indirect sales reduce control over the product or sales process and require sharing revenues.
  • This article is for entrepreneurs considering leveraging indirect sales to grow their business.

For your business to succeed, you must find ways to sell your products or services to people who want and need them. You probably have a team of sales representatives, but they only have so much time in the day to reach and sell to your customers. You could increase the size of your sales team, but this can be costly and inefficient. The other option is to pursue an indirect sales channel as a lower risk, lower cost method of growing your sales and your business.

Indirect sales vs. direct sales

Indirect sales involve using a third party (e.g., partner, affiliate, distributor) to sell your company’s products or services. Customers could purchase your products or services at physical locations (e.g., retail stores, warehouses) or online (e.g., resellers’ websites, Amazon).

Direct sales involve selling your products or services directly to the customer, who would make purchases through your sales staff, in your store, on your website, at a trade show or through mail order.

How does indirect sales work?

Indirect sales enable your company to increase sales quickly without hiring additional sales staff. You can combine both direct and indirect sales approaches to sell your products or services, where indirect sales will support what your in-house sales personnel are doing. You can also use indirect sales to expand into new markets or grow your existing markets.

Some companies will use indirect sales to handle an increase in demand for its products or services, which would be more efficient than hiring more experienced salespeople.

Key takeaway: Indirect sales can increase your company's footprint without requiring you to expand your staff.

Indirect sales channels

There are four main types of indirect sales channels:

  1. Affiliates are companies that sell products or services in exchange for a commission. This includes third parties that serve as intermediaries to link the company to affiliate sellers. Affiliates are only paid when they make a sale. You can provide affiliates with advertising and marketing tools for increasing traffic and growing the business.

  2. Resellers sell directly to customers in face-to-face settings (e.g., retail stores, wholesalers, dealers), representing the manufacturer of the product. This is a common practice in the software and hardware industries. For example, a customer might purchase a smartphone from a telephone and Internet service provider’s store (the reseller) rather that the manufacturer’s store. Resellers are typically paid through a margin percentage or profit percentage on each sale.

  3. Independent sales representatives are individuals who are hired on an as-needed basis to sell the company’s products or services. They can be added or removed as needed, which lowers the company’s overhead. One common example is an insurance agent who is paid on commission for the generation of new customers and renewal business.

  4. System integrators are consultants who provide customers with specific solutions to their issues. They typically work in B2B product or services sales. For example, a system integrator might work with a company that provides hardware and software products as well as tech advice, and would provide sales and consulting services.

Key takeaway: Each type of indirect sales channel has its own model – consider which is right for your business.

Pros and cons of indirect sales channels

Indirect sales channels have several benefits and drawbacks when compared to direct sales channels.

Pros

  • Lower sales and marketing costs: It is more cost effective to outsource your sales functions when you consider the cost of hiring, training, and equipping new salespeople for your in-house team.

  • Easier to scale: Indirect sales channels enable you to scale up when you want to enter a new market or increase sales in existing markets. It’s also easier to scale down (i.e., reduce the number of indirect sales partners) when sales decline or your internal sales teams are able to handle existing sales.

  • Focus on your business: Employing third parties to sell your products or services enables you to focus on other areas of your business (e.g., product development and quality, employee training, operations, marketing). It also allows you to apply your resources to other areas of the business that need support.

  • Less risk: Selling through indirect sales channels is a less risky way to evaluate new or existing products in new markets. You can try out new products and services, new packages, new campaigns, and new promotions with an indirect sales partner without taking the risk of exposing direct sales channels.

  • Established trust: Indirect sales channels already have established relationships with customers and markets. They will save you the time of trying to enter a new market and reach new customers. They are already set up to create a brand presence for your company, which saves you the time and effort of trying to do so.

Cons

  • Loss of control over sales process: Using a third party to sell your products or services places another layer between your company and your customers. The third party could limit or eliminate your involvement in the sales process, except when you would make appointments with leads when they are ready to buy. It could also take longer for your product or service to reach the customer.

  • Loss of control over brand: Since a third party is selling your product or service, you can lose control over how your brand is marketed and perceived. This might make it more difficult to establish brand loyalty. Customer service might be compromised, and your company could have difficulty communicating its goals to customers.

  • Uncertain revenues: Since you have no control over the sales process, you cannot accurately predict your revenue stream, which could be an issue if operations depend on hitting certain monthly or quarterly revenue targets.

  • Shared revenues: Working with indirect sales partners means having to pay a third party to generate leads or make sales, which is a cost that would not exist if you handled the sales internally. Depending on the relationship with the third party, you might have to share a percentage of your sales revenue with your partners.

Key takeaway: Indirect sales can lower your overhead and expedite growth, but they reduce your control over your brand and require shared revenue agreements.

What to consider before working with indirect sales distribution

Selling your products or services through indirect sales channels can help to increase your company’s revenue and efficiency. However, the method you choose must match with what you are selling. Consider the following factors before integrating an indirect sales strategy into your business:

  • Stage of life cycle: How well your product or service will sell through an indirect sales channel will depend on its stage of the product life cycle. For example, if you are selling a relatively new product where you have not yet worked out the bugs or features, it would be better to sell it directly to get direct feedback from consumers. This will enable you to improve the product or service for the next iteration, which might be a better time to incorporate indirect sales.

  • Marketability: An indirect sales channel is more appropriate if you have a simple product that will sell easily and quickly without numerous touchpoints or customers needing to do a lot of research. A direct sales strategy would be better if your product is complicated, difficult to use and requires salespeople to explain its uses and benefits to potential customers.

  • Fully researched sales process: Before deciding on whether to pursue an indirect sales channel, you should have a well-designed sales process. This means you can quickly and completely describe average sales cycles, buyer personas, buying triggers, pain points, and other key details. This information is essential for ensuring your indirect sales channel partner will be able to identify and sell to your ideal customers.

  • One-tier vs. two-tier distribution: One-tier distribution involves working directly with an indirect sales partner, while two-tier distribution involves partnering with a distributor, who will then work with multiple indirect sales partners. If you understand the market and have a well-established sales process, then it makes sense to use one-tier distribution. If you don’t know the players or the market, then working with a distributor in a two-tier distribution model may work better for your indirect sales strategy.

Key takeaway: Consider the nature of your business before choosing whether to leverage indirect sales or not.

Image Credit: fizkes / Getty Images
David Gargaro
David Gargaro
Business News Daily Contributing Writer
David Gargaro is a content writer and copy editor with more than 20 years of experience in multiple industries, including publishing, advertising, marketing, finance, and small business. He has written on B2B-focused topics covering business technology, sales, marketing, and insurance. David has a Bachelor of Arts degree in English and Actuarial Science from the University of Toronto. He served as the managing editor of a small publishing company, and self-published a book called How to Run Your Company… Into the Ground.