Giving Away Margin: Direct Vs Indirect

Giving Away Margin: Direct Vs Indirect

Giving Away Margin: Direct Vs Indirect

There is a common perception in industry, especially amongst smaller customers that using distributors or other middle men amounts only to "giving away margin". The perception is completely understandable, but it derives from a lack of understanding of the channel partner model.

Take the example of a manufacturing company (substitute development costs for materials/labour for a software or hosted-services provider) that has a cost of goods sold and general and administrative costs to run the business. It only sells directly to end customers, so it also has direct sales costs. What's left when all of these are deducted from the end-sell price is gross profit*.

Now consider what happens when this company decides to sell its products through a distributor. This decision does not impact on the cost of manufacturing the goods or, for the most part, on the G&A costs of running the business. Neither does it impact the end-sell price - in general, the customer is not going to pay significantly more to buy it from your distributor, so the end-sell price remains the same.

In order for the supplier to maintain its actual margin, the distributor's margin has to be funded from the supplier's selling costs. This requires a fundamental change in the vendor's business model. The transfer of selling activities to the channel is accompanied by a transfer of selling costs.

If vendor selling activities and resources are not replaced by lower cost channel management activities and resources, the channel margin ends up being funded, not by transferred costs, but by vendor margin.

This is the classical mistake which is made by thousands of companies and it is repeated by some, over and over again. There are fundamental differences in the skill set and cost structure of the team required to support sales channel partners and the team responsible for executing direct sales.

Experience demonstrates a whole range of reasons why sales people make poor, ineffective and overly expensive sales channel managers.

if you would like to have more information aboutmargins, please follow this link.

POST COMMENT

Six common CV mistakes that can screw you up Is Kapenzo Lace Wigs A Good Brand Saving Water With The Use Of Rain Barrels Sihanoukville: Nightlife How To Choose A Perfect Burberry Handbag Scuba Diving in the Caribbean Htc Desire Z Most Certainly The Last Word On Smartiness Quieres un bolso de lujo Burberry? Burberry es perfectamente atractivo O2 Contracts - Enjoy Life with the Benefit of Smooth Connectivity Bus-tickets Prevent black spots that appear on the face requires some effort Some Effective Methods To Enhance Your Company's Position Using Roll Ups