Direct Distribution Channels or Sales Channels


Today, I’ll be talking about direct distribution channels, or direct sales channels, for SaaS businesses. As a reminder, there are two different categories of distribution channels: direct and indirect. A direct sales or distribution channel involves selling directly to a customer. When you charge them, it is your company name on their credit card statement or on the invoice they are paying. There are no third-party intermediaries involved in that process.

The Three Types of Direct Distribution Channels

So, let’s talk about three different direct distribution channels that are available to you as a SaaS business. I’m going to start with the simplest to implement — which is typically appropriate for the lowest-price-point products — and then we’ll end on the most expensive, more complicated direct distribution channels at the end.

1. eCommerce/Self-Service

The simplest way, particularly for low-price-point products, is to use eCommerce, or self-service, distribution. The way that model works is you drive traffic from online advertising, PR, social media, or paid advertising to a website. The customer comes to the website, looks at the content — text, video, white papers — and learns more about your offering. Then, they decide to buy, and they conduct the transaction entirely on the website. Click. Checkout. Boom: They now have access to your software.

That’s a classic eCommerce self-service-based approach. It’s typically appropriate when price points for your offerings are under $1,000 per year, as that’s a price point that buyers feel comfortable paying without talking to a live person in that process.

So, that’s your first option, E-commerce self-service.

2. Phone-Based Sales Force

Your second direct sales or distribution channel option is the phone-based sales force. Now, I use that term, “phone-based,” a bit loosely. A lot of sales are done via email, LinkedIn message, or video conferencing of all types. But that role originally started when none of those technologies existed (except for email), and so now, we kind of use “phone-based sales force” as a label to describe this idea of having your salespeople in a central location, using technology to communicate virtually and interact with potential customers.

A phone-based sales force is appropriate for sales in the range of $1,000 per year up to around $100,000 in annual contract value.

What is really nice about that sales force is that you can have interactions with customers and potential buyers. You can do a discovery call to assess their needs, and you can match their needs to one or more product offerings. You can differentiate your offerings relative to the competitor’s in a live dialogue. You can hear the objections and respond to those objections.

Now obviously, the downside is that it’s more expensive. Having high-price labor involved in the sales process drives up the labor cost. This is why the annual contract value of your software offering is a very important determinant of whether you can afford a phone-based sales force.

If your customer spends $10 a year, you can’t have a phone-based sales force. It’s all self-service, maybe some bots, and some automation. If the customers are spending $50,000 a year, you can absolutely afford the economics of a phone-based sales force. That’s the middle option.

So, we talked about eCommerce/self-service as our first option. We talked about a phone-based sales force as our second option.

3. Field-Based Sales Force

The third and final option is a field-based sales force, where the salespeople are not in a central location, they’re in cars and on airplanes, driving and traveling to a customer to meet them in person, in their offices, to talk about their product offerings and the problems and solutions they have to offer.

What a field-based sales force is very good at is developing a high-trust relationship with a potential buyer. This is good when you are offering a service that costs $100,000 a year up to several million dollars a year, in terms of the annual contract value. People do not like to bet their careers on buying at such a high price point without meeting somebody in person first.

Before I got into this kind of work many, many decades ago, I was a professional IT buyer for about a year, and I had a million dollars to spend on various SaaS technologies. It’s really stressful as a buyer because I know that if I make the wrong decision, my company suffers. In all likelihood, I’d get fired.

So, at that kind of spending level, you really want to meet people face-to-face. The sale is as much about the technology as it is about the people. Once I cut that PO to pay that invoice, will you still be there if I have a problem? That’s the question in the back of everyone’s minds, particularly for those very large, high-price-point purchases.

With a field-based sales force, when they’re meeting in person, they show up. You look at them across the table, eye-to-eye, and you think, “I trust this person.” When you have requests, they respond to them. It’s a great way to develop a deeper relationship — a higher-trust relationship — but it’s very expensive.

Field-based salespeople can easily be in the hundreds of thousands of dollars in compensation in addition to bonuses and incentive compensation. So, they’re very expensive — super effective, but very expensive. This strategy is only appropriate for the higher-priced annual-contract-value types of offerings.

Which Direct Distribution Channel Is Best for Your Business?

The right approach for your business depends an awful lot on your economics. What is the price point of your offering? What is your lifetime value? Can you afford the costs of these different channels?

eCommerce is the least expensive, least effective option within these areas. In enterprises, you want the field-based sales forces that go calling Fortune 500 clients. They’re super effective, can answer all kinds of objections, but are really expensive.

So, the right fit is often determined by the price point of your offering and the sophistication level of your customers. Consumer audiences tend to need eCommerce/self-service, and Fortune 500 buyers tend to need the field-based sales forces.

Hopefully, that gives you a rough idea of the options available to you and how to pick amongst them. If you have any questions, feel free to comment below. I’ll be happy to answer them. If you want to be notified about more resources like this, fill out the form below.

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