As an entrepreneur, you need a plan for how to get your product to your customers. You can manage distribution yourself, or you can find a partner through an indirect distribution model, which takes the hassle out of direct sales but comes with its own costs and challenges.
Small business owners need to understand their options to determine the best distribution method. Learn more about how indirect distribution works and some indirect distribution strategies you can consider implementing.
What is indirect distribution?
Indirect distribution involves partnering with retailers and wholesalers to distribute products and services to end consumers. In the indirect distribution model, companies use intermediaries to carry out activities such as marketing, selling, storing, and shipping goods to customers.
In contrast to companies that employ a direct sales strategy (selling products directly to consumers), companies with indirect sales channels only handle certain aspects of the process and share responsibilities and revenues with distributors.
Indirect distribution strategy
You can consider a single indirect distribution channel or a combination of channels for the different stages your product takes to reach your customer. Common indirect channels include:
Independent Distributor
An independent sales representative is an experienced salesperson who is hired on a contract basis to sell products to customers on behalf of a company. Unlike a direct sales strategy, which requires you to handle sales in-house, an independent sales representative offers you the opportunity to build a comprehensive sales process without the need to hire an in-house sales force. Independent sales representatives typically work on a commission basis and use their existing network of qualified leads to drive sales for their clients.
Retail company
In this indirect distribution channel, a manufacturer or merchant partners with a retailer to sell products to consumers. The retailer can then purchase the products to sell to their customer base. Real store Store or Online e-commerce store.
For example, a company that makes kitchen supplies can partner with local retailers or large retail chains such as Target or Walmart to reach new customers.
Wholesaler
A wholesaler is a company that purchases goods in bulk and resells them to retailers. Wholesaler teeth B2B companies A company that acts as an intermediary between companies that manufacture products and companies that sell those products. For example, a clothing manufacturer may partner with a wholesaler that buys clothing in bulk and sells it to a network of retailers.
Franchise
Another indirect distribution channel is Franchise Business ModelFranchising occurs when a franchisor licenses an established brand to individuals or groups. These groups, or franchisees, pay fees and ongoing royalties to operate their stores.
Franchisors provide franchisees with training, tools, and marketing materials, offering entrepreneurs the opportunity to launch an embedded business. Trademark ValueFor companies with a valuable brand, franchising can be a convenient indirect distribution channel for getting their products or services to customers.
Choosing between direct and indirect distribution
Factors to consider when making your choice include: Distribution Channel Best for your company:
Initial cost
Cost Start your own business Costs add up quickly. Setting up your own direct sales channel may require more up-front investment than using an indirect sales channel. For example, you may need to hire sales staff, rent storage space, Warehouse Management System (WMS)Oversee the entire picking, packing and shipping process.
For entrepreneurs who want to focus on product development and brand identity without worrying about how to distribute to consumers, indirect distribution channels are a cost-effective strategy because they eliminate the need to develop expensive order fulfillment systems.
Level of control
By selling directly to customers and managing the entire distribution process, Customer ExperienceMerchants using direct channels can manage customer relationships by overseeing the entire process from sales to distribution to post-purchase customer service. Companies using indirect strategies need to ensure that the third-party vendors they use can be trusted.
Revenue sharing
Merchants who use indirect distribution channels typically share revenue with partners who help deliver products or services to customers. For example, e-commerce merchants who sell directly may enjoy higher profit margins than merchants who use independent salespeople who earn a commission on each sale.
logistics
Indirect distribution channels offer entrepreneurs the opportunity to sell and distribute goods and services without having to manage complex order fulfillment logistics. Indirect distribution partners provide the systems and additional resources that allow businesses to start distributing immediately, without all the work and investment required to build a distribution operation from the ground up.
Market size
Indirect distribution channels help merchants and manufacturers reach a wider market as partners such as independent sales representatives and retailers already have prospects, leads, and customers.
For example, an e-commerce merchant selling tech accessories can partner with a popular retailer to reach the social media followers of potential customers. Partnering with other businesses for distribution can help e-commerce merchants expand their customer base into new markets.
Indirect Channels FAQ
What are examples of indirect channels?
An example of an indirect channel is a wholesaler who buys in bulk from a manufacturer and then resells it to a network of retailers.
What is the difference between direct and indirect channels?
Direct channels require more up-front investment but offer greater control and higher profit margins than indirect channels. In contrast, indirect channels may have limited profit margins but offer the potential for greater market reach.
What types of businesses use indirect channels?
Many businesses, such as e-commerce companies selling clothing, kitchenware, and tech accessories, use indirect channels to reach new and existing customers, while luxury brands, complex products, and fresh foods may be better served by direct channels.
