Situational channeling: a pragmatic way to sell together.

When asked to discuss the business potential of new or existing IT-based solutions, the commercial elements, more specific marketing and sales, are a common worry for most involved managers. How to go to market and especially the pro‘s and con‘s on direct vs. indirect models are a topic of discussion. A wrong choice has lead many organizations left behind with a lot of effort and costs and hardly any revenue. In most cases I advise a hybrid but focused approach based upon a situational SWOT-analysis (Strong-Weak-Opportunity-Threat).

First of all I don‘t see direct or indirect sales models as an all encompassing holy grail decision. Although I grew up with the paradigm that on should have a strict choice for either of both in any given product-market combination, I discovered that single minded thinking is not a good advisor.

Some observations:

  • The big software selling companies have always had hybrid models, normally having an indirect solution for more commodity type products and a direct for the more complex (and higher margin) products. Sales groups are normally strictly separated but channel/territory conflicts are a common issue. Probably you have seen or run into this one: you are a reseller and going after an opportunity that is sizable. Out of the blue a direct sales emerges and wants to close the deal direct.
  • Traditional B2B reseller models are like shooting with hail in a flock of birds: you think you will hit one certainly but are often left with just a pile of feathers. I did some questioning around to find out what the success rate is for setting up a reseller channel. Common sense is that one out of ten reseller agreements bring more revenue than the costs that were involved.
  • An analyses of successful reseller relationships shows that the solution is either the only thing offered by the reseller or at least good for 80% of the revenue. Another successful category are OEM-like resellers who standard build in the products into their own solutions.
  • Direct sales success has one tremendous limiting factor: how many quality sales feet can you have on the street? Except for a rather scares situation where people are actual coming to you and ask to buy, the vast majority of deals only close through interaction of a sales resource on site with a customer. The average burn-rate of direct sales resources tells a clear story, or putting it more nicely, the wide job experience of a sales person, tells all about the conversion qualities required.
  • Software sales models are changing. We move from a license investment upfront model to a usage models either driven by Software as a Service (SaaS) or pay-per-view requirements. This means that sales margins have to be re-defined. A 3 year fixed monthly paid subscription is a different model from both a recognition and commission point of view than a simple margin on a license.

All of the above fuel a more situational dependent sales approach. For any given sales opportunity decide on a direct or indirect approach, the partner of choice and the model of engagement. This requires flexibility of the own selling organization and cultural compatibility with partners in the sales process. A partner in a joint opportunity approach could be a direct competitor in another one.

The main elements that make up the model of choice for a given situation are: the market, the customer, the contractual time frame, the Eco-system and the cost of sales. Normally these elements should be found in a go-to-market strategy but with one difference: every individual potential customer is a market. Therefore I advise a limited set of engagement templates to choose from.

A difficult model? Maybe something to experiment with and learn from, especially to find out with whom it works or not. And to figure out how to manage all parallel engagements. I think it will show you the cost of sales for individual opportunities more clearly and at least no worse results than from traditional models. Once the approach is accepted as standard practice I am convinced it will boost your opportunity conversion rate.

Do you believe in situational partnering? Let me know.

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