This white paper discusses strategies for indirect channel distribution of products through partners like dealers and resellers. It outlines the pros and cons of direct versus indirect sales approaches. Key steps for developing an indirect channel include creating a business plan, evaluating competition, selecting qualified distribution partners, and establishing documentation like agreements, pricing, and support policies. Selecting honest, competent partners that fit the business plan and have expertise in desired markets or customer niches is important for successful execution of an indirect sales strategy.

1. A White Paper
Successful Sales
Indirect Channel Distribution That Works
By Darrel Huskey
March 16, 2009

2. Overview
You have a product and you want to sell it. You want to sell it profitably, quickly, achieve brand
name recognition, minimize customer support issues and use the basis of that product’s success to
springboard into other successful products and on and on. But, where do you start? Is the product
retail in nature? Can it be sold over the internet? Are there installation issues or is the product
extremely technical? Should you have direct sales or use dealers or resellers or manufacturers’
representatives (Reps)? What are the advantages and disadvantages of using Reps and (or)
dealers? (Rather than using ambiguous nomenclature we will use Partners as a generic “cover-all”
term.)
The questions are myriad. The following will bring some order, guidelines and suggestions to sort
through those initial concerns and aid the decision-making process.
Your initial sales distribution decisions are difficult but straight forward. What are the
demographics of my customers and what is the best method to sell to those customers? Direct
Sales or Indirect Sales Channel? The following table provides pros and cons.
Direct/Indirect Sales Considerations
Direct Sales Indirect Sales
Pros Cons Pros Cons
Hire your own team Time and Cost Partners with desired expertise and Less Control over sales
existing relationships with target activity and results
customers
Grow team at your own Grow team at your own pace
pace
Control over all sales May not sell complete
activity line
Place sales personnel in Office Cost unless work from Recruit partners where you want them May not be perfect in
desired geographic home office location or coverage
locations
Pay full-time Salary No Salary – Only pay for performance
after the sale
Training and Re-training Training and Re-
training
Uses more management time or Less time spent in management only Lost revenue due to
greater expense to hire sales pay for performance poor performance
manager
Expensive hiring mistakes Terminate bad or underperforming
Partners
Provide Customer Support Can Provide Customer Support
Getting Started
Realistic self and company examination is often a difficult undertaking. A business owner puts so
much money, effort and heartache into a product that it is hard to take an unbiased approach at
“self” appraisal. A good business plan is the place to start. A plan that is written and re-written
with goal of doing business profitably-not just getting funding or simply looking good on paper-is
the goal. The plan should have all the requisite components, but the key area of focus for this
writing is the sales sections.
A well-written plan should force you to evaluate what you know and, more importantly, what you
do not know. All of the “what ifs” from a positive and negative perspective should be considered.
Most individuals (assuming you are starting your own business) will be selling a product or service
of which they are familiar and knowledgeable. Good plan completed, you should now know your
cost versus the competition (as well as your delivery cost to market).
Indirect Channel Distribution That Works 2

3. So how does your competition do it? Can you mirror your competitors’ distribution strategy more
efficiently and with better margins? A Strength and Weakness Table (SWAT) is an effective method
of not only competitive product evaluation, but also all of the ancillary factors that have to be
considered in the final Cost of Sales and distribution strategies. This Cost of Sales consideration
should not stop at your warehouse door, but should be appraised at every step of the distribution
process all the way through to the final consumer’s product purchase value proposition. The
economics lesson on elastic and inelastic demand should play heavily into the Win-Win
opportunities that should lead to everyone’s (YOUR) success.
One last consideration before continuing your distribution design should be the “reverse look” of
your product/service delivery to the ultimate consumer. Is there only one path to market? So, you
make the Widget, you sell the Widget to a wholesaler, he sells it to the Retail store and then Joe
the consumer takes it home. Simple sweet success? Maybe not. Is there another vertical path that
the product could take to the consumer’s door? As the following graphic illustrates, there could be
other considerations given your Widget being OEMed or perhaps co-marketed with someone else
or can it be sold to the government/military or both.
Widget
OEM/Distribution
Widget Widget
Widget
Manufacturer Wholesaler
Retailer
Internet OEM Retailer
Widget Manufacturer
can sell directly via the internet as well.
Distribution Strategies
Back Office
Now you are ready to sell. Simply select your dealers and count the money…WRONG! More
internal preparation has to occur. The checklist below should be complete before you go to
market. Much of this should have been finished in an effective and complete business plan.
Indirect Channel Distribution That Works 3

4. Documentation:
• Warranties (Extended Warranty availability and cost)
• Support (Technical and Customer – at all levels of the Distribution chain)
• Return Material Authorizations (RMA) and procedures
• RMA Handling (Internal or Third Party)
• Legal (Distribution and NDA) Agreements
• Licensing
• Insurance Policy (Product Liability)
• Technical specification sheet
• Marketing materials
• Co-Marketing strategy
• SWAT sheets
• Business Cards
• Website
• Sales Order sheets
• Credit Card Setup
• Credit Policy (Terms of Sale)
• Pricing Policy
• Third Party Material (Studies, White Papers, Product Recommendations, etc.)
• Training Material
• Sales and Margin Per forma
Most of the above is straight forward, but the most important piece of documentation is the
Distribution Agreement. There are Distribution templates available that should force you to answer
some very key go-to-market questions like:
• Exclusive or Non-exclusive sales territories or vertical markets.
• Length of contract.
• Cancellation or termination policy.
• Residual compensation after termination.
• Volume pricing.
• Sale of competitive products.
• Payment terms.
• Scope of work.
• Marketing and Branding guidelines.
• Goals.
• Disagreement resolution.
Distribution Partner Selection
You now have a good plan in place with all the business components to make the plan work. Now
you select the partners that will help you execute the plan. You can have great plans, but without
the right partners you will fail. There is no magic formula for success. There are considerations
that will assist you in your decision-making process. Select partners that have the following
qualities:
Honest, Ethical and Reputable – This may seem obvious, but when your reputation is on the
line you will realize that your Brand in the business community will either be enhanced or smeared
by those with whom you partner. Birds of a feather!
Competence and Niche
• Does your partner have the technical capability to sell your product?
• Does he fit into your plans, market organization and structure?
Indirect Channel Distribution That Works 4

5. Business Plan
• Does your partner have a successful executable plan?
• Is there synergy and compatibility in your and his plan?
Market or Territory served
• How many offices does your partner have?
• What Market(s) does he serve?
• Can he provide adequate coverage in all areas and facets of his Market?
• How many salespeople does he have?
• Does he provide good customer support?
• Does he serve only one niche?
• How long has he been in business?
• What is his customer’s perception of him in the Market place?
• Are his salespeople properly incentivized to sell your product? Will they be?
• Where does your product stand in comparison to other products your partner sells?
Training and Sales Meetings – Are you invited into sales meetings to train and/or “ride” with
the field sales representatives? This is the only way to truly understand your market and
customers.
Number of Partners – Do you want two partners that are average or one that is outstanding?
One is the answer. No need to duplicate efforts and cause market dissension and pricing issues if
you have one successful partner. If you want to sell more of your product, then help that existing
partner be more successful.
Channel Conflict – Be precise and clear in your agreements and communication to the company
and distribution partners about everyone’s responsibilities regarding account management and
commissions. If you have employee sales people and indirect distribution they should not compete
with each other. OEM relationships can also affect channel performance and stability. Again,
preplanning is paramount and will obviate time consuming disagreements and even potential
litigation.
Summary
This document does not cover the Sales Strategy and Method of Indirect Distribution completely. It
is meant to be a thought provoking learning tool useful to those business people who wish to start
or grow their business. For more insight and counsel you are welcome to contact the author at
dbhuskey@gmail.com or 704.543.6070.
Indirect Channel Distribution That Works 5