There are many ways to distribute your product to customers; learn which might be best for you.
Finding a sustainable business model for any startup can be challenging.
Unfortunately, many entrepreneurs too often fall into the trap of what I call “build it and they will come” mentality where the startup focuses on building a cool product at the expense of sales and distribution.
I fell into the same trap in both my former startups. If it hadn’t been for amazing employees, advisors and consultants, I’m convinced we wouldn’t have had the success we did with both startups.
If I were to start over again, I would begin thinking about sales (and marketing) from day one!
There are multiple methods to sell your products to the customer (directly or via a third party), with pros and cons to each method. Let’s look at each in more detail.
Types of Selling
Before we look at the nine types of selling, it’s helpful to note that selling can be categorized in many different ways; e.g. transactional, relationship, subscription, consultative, solution, direct, indirect, and many more.
For our purposes, we’ll use these two groups:
- Direct Selling: This means customers can purchase your solution directly from you versus a third party (e.g. reseller). For smaller sales, customers will likely purchase directly from the website; for larger sales, inside/outside sales representatives are generally involved.
- Indirect Selling: This comes in many flavors including value added resellers, independent representatives, app stores, and so on. You can use this to complement your direct selling strategy or exclusively use indirect sales, so you can focus on building products.
Let’s look at the nine types of selling in more detail.
1. Online Direct Selling
Selling products from your website, typically using credits and/or PayPal, directly to the customer is a common distribution technique for online startups. For example, you can sell subscriptions (SaaS), physical products (e.g. Nike, GAP), educational courses, and so on.
2. Online Platforms
Online platforms by Apple (i/mac/tvOS App Store), Google (Play Store, Marketplace) and smaller players can be great if you build products exclusively for those platforms or as an app that complements your website. These platforms handle the order fulfillment process and typically take 30% commissions on sales made through their platform.
3. Inside Sales Reps
Inside selling (aka telesales/telemarketing) occurs over the phone and/or via a web presentation. Inside sales reps typically get a base salary, commissions, bonuses, and/or other incentives. Their job is to contact customers daily (e.g. 30+ calls per day) and win business remotely.
4. Outside Sales Reps
Outside (“field”) selling involves meeting with customers in person by setting up appointments in advance or simply dropping by. Similar to inside sales reps, outside sales reps get a salary, commissions, bonuses, and/or other incentives. With outside reps, there is the added cost of reimbursing automobile, travel and other expenses.
5. Independent Sales Reps
These are generally individuals who work independently and take 10% to 30% in commissions. The one key difference between independent reps and resellers/distributors (described below) is that independent reps sell your product but do not handle the customer invoicing paperwork; instead, they rely on you to do that and pay them the commissions. This is one reason they charge a lower commission.
These are companies with a full organization behind them and may have their own, company or independent, sales representatives. These companies take between 30% to 50% in commissions on new sales and from zero to 40% on renewal sales for subscription/recurring revenue products and handle the purchase orders, invoicing and collection from customers.
7. Retail Selling
Retail selling includes selling in physical stores (e.g. Best Buy, shopping mall) or online websites (e.g. Amazon, Etsy). For many companies, how much their product is sold for depends on how much the retailer decides to mark it up and discount during sales promotions; for other companies (e.g. Apple), the price is dictated by the company to maintain a certain standard.
8. Wholesale Selling
This enables you to sell your product in bulk to a company (e.g. Walmart) and let them sell directly to customers. This can be a good way to avoid building your own sales team, leverage the wholesaler’s brand and focus on building great products.
9. Catalog Companies
Catalogs are products grouped together either in print or online form. This is a great way to leverage a company with a large reader base (in a given particular demographic group) and have the customer come to you, while also building your brand. One disadvantage of catalogs is the difficulty of making any changes (e.g. price, corrections) after the catalog has already printed and shipped.
Which Type Is Right For You?
At my former startup, Big Universe (an ebook SaaS platform), we initially relied heavily on resellers. We then moved to a hybrid model with some inside sales and resellers in territories we had no or weak coverage. Eventually, we moved to 100% inside reps (employees) in the US and resellers overseas.
Managing a sales organization was one of the hardest things I had to do and I often joke about how I lost most of my hair to this aspect of our startup, so… here are a couple tips from a bald guy:
- Sales: Quickly figure out how you plan to distribute your product, based on how much money you can afford to spend. I waited too long to focus on generating significant revenues.
- Passion: If you don’t enjoy managing sales, then hire the right person who can. I never really learned this lesson and as a result, we did good enough to be profitable and acquired but not great.
For us, in the end, having our own direct sales team domestically was preferable since we could better control our margins, messaging and overall customer experience. We weren’t large enough to have our own staff overseas, so we leveraged resellers there.
There are no 100% right or wrong answers for how to distribute your products. Much of it relies on experimentation to see which channels are the most appropriate fit for your particular kind of tool and intended buyer.