Which sales channel is the right one for the business model?

In order to get to the bottom of this question, the most common business models and sales channels are arranged and summarized.

Business model vs. sales

Many entrepreneurs underestimate how closely the business model is linked to the type of sales. Whether a vegetable farmer needs to set up a telephone hotline to sell the vegetables or whether an architect should conduct cold calling in the regional environment are questions that are essential for every entrepreneur.

For example, for a small vegetable farmer who only supplies his regional environment with the business model of trading in goods, the appropriate sales channel would be direct sales, with additional coordinated marketing measures. From the wide range of implementation options that are hidden behind direct sales, this example is about direct sales at a physical location. The vegetable farmer largely controls his sales activities through direct customer contact at his stand at the weekly market. It would make little sense for him to set up a telephone hotline for sales, since the farmer does not produce large quantities that are to be sold nationwide. If the farmer were now to grow specialties from old seeds, it would again be advisable to initiate a minimum of digital marketing measures and a digital sales channel for customer onboarding, as national customers could now also be interested in the products.

It follows from this that the more everyday and replicable the product offered is in physical direct sales at retailers (excluding chain stores), the less sense a digital marketing and sales strategy makes. Conversely, this means that if product rarities are offered that clearly stand out from the majority of the market, then digital marketing and sales measures become increasingly sensible. The reason for this is: the rarer or higher quality a product is on sale, the larger the target customer radius. This also applies to other business models, but in particular to physical direct sales.

The most common sales channels for companies are described below.

Direct Sales Channels

Direct sales at the physical location

Classically, this represents a sales area in the form of branches, shops and stands, where customers can convince themselves of the products, receive advice and sales talks take place.

Per:

• Benefits from local and regional integration of the company
• Direct contact with the customer is maintained
• Direct control over all sales aspects
• All sales remain in the company

cons:

• High monthly costs for retail space, staff and warehousing of goods
• Can only be scaled with high costs and effort (branch network is highly complex and expensive to set up)

Appropriate business model

Retail, market sale of self-produced goods, add-ons, solution provider, lock-in model

Email and Telephone Sales

This form of distribution is classic and still very popular. It uses the personal conversation/exchange with the customer via telephone or e-mail contact. This personal form of sales helps to get a better impression of the customer and to build a good relationship.

Per:

• Targeted building of trust, cultivating relationships and persuading the customer directly
• comparatively cheap and easy to implement

cons:

• no smooth transition to the digital sales channels
• only suitable to a limited extent for the cold acquisition of customers (here the legal regulations for cold acquisition should be considered urgently)
• very time and personnel intensive

Suitable business model:

Retail (primarily B2B), service providers (B2B consulting), online shops (newsletter distribution), licensed products (primarily B2B), affiliation, solution provider (B2B), subscription (B2B/B2C)

Direct sales in the e-commerce sector

In the e-commerce sector, sales are handled via online shops and reflect similar advantages and disadvantages compared to direct sales. A special form of e-commerce are marketplaces such as Amazon or Chrono24, which represent an easy way for customers to get the desired product, but cost commission. Especially in the B2B area, the product catalogs for the procurement of materials and goods are gradually being replaced by procurement platforms for industry-specific products. Marketing measures such as search engine marketing (SEM), SEO (Search Engine Optimization) and SEA (Search Engine Advertising) are essential for finding products in the B2C sector.

Per:

• large customer radius
• simple integration with other digital channels
• direct contact with the customer can be maintained
• direct control over all sales aspects
• the entire turnover remains in the company

cons:

• Digital marketing and sales costs (SEO, SEA, SEM)
• regional integration is difficult to manage
• Additional costs and logistics expenses due to the shipment of goods

Suitable business model:

Marketplaces, online auction houses, online shops, drop shipping, licensed products (B2C/B2B), affiliation, solution provider (B2B), subscription (B2B/B2C), freemium (B2B/B2C), lock-in model, add-ons

network distribution

Network sales are especially important in the B2B sector. The main thing here is to maintain personal contacts and strategic relationships. This sales channel can be expanded with automated systems. Multi-level marketing is a special form here, which can be found primarily in certain sectors (financial services). Here, attention should be paid to serious communication with the customer, so that no comparison is drawn with dubious pyramid systems.

Per:

• Flexible for the strategic adjustment of sales measures
• Building customer trust, improving relationships with existing customers
• Good platforms such as trade fairs and organizations (e.g. business clubs)

cons:

• No quick work results, time to set up
• High effort in construction

Suitable business model:

Financial services, multi-level trading of specially produced goods with intermediaries sharing profits (hybrid form of direct and indirect sales), online shops

Sales via social networks with a company account (social selling)

Social media is no longer suitable for just networking and exchanging ideas with friends. With the introduction of advertising on these platforms, the product can be sold directly to the customer there.

Per:

• direct contact with the customer
• free infrastructure, which can be booked for a fee
• flowing sales processes

cons:

• so far only tested, established and accepted for B2C products
• Binding to an external platform and its rules
• Commission for linking to the online shop

Suitable business model:

Marketplaces, online shops, service providers (especially advice), dropshipping, subscription (B2C), freemium (B2C), affiliation

Indirect sales channels

Distribution via multipliers (consultants, influencers, affiliates)

Also known as recommendation-based sales, this is the form of sales that uses so-called multipliers who advertise and recommend the product. Multipliers here are, for example, influencers, bloggers, affiliates, consultants and professional networkers.

Per:

• relatively easy implementation
• The reach and popularity of the multipliers rubs off on your own brand
• Personal contact with target customers can be mediated.
• Leveraging the wide reach of famous influencers

cons:

• High commission costs
• Commissions per sale

Suitable business model:

Marketplaces, online shops, drop shipping, licensed products (B2C/B2B), affiliation, solution provider (B2C), subscription (B2C), freemium (B2B/B2C), lock-in model, add-ons

Multi-level distribution via intermediaries

With this form of distribution, the product is distributed via intermediaries and middlemen. It is the most important form of B2C trade. In particular, the intermediaries take on the final sales transactions with the customer. Basically, there are usually three levels: the manufacturer, the wholesaler and the final retailer. However, these stages can be expanded at will. The only limiting factor here is the desired profit margin. The individual stages of sales can be put together in both analogue and digital form.

Per:

• Depending on the level: Low fixed costs for storage, shipping, retail space and staff
• good scaling opportunities
• Resource sharing with the intermediaries

cons:

• no direct customer contact (if not final retailer)
• Sales margins must be shared with the intermediary
• Hardly any control over the sales activities of the intermediaries (price, presentation, customer advice)

Suitable business model:

Chain Store, Wholesale, Manufacturing of Products, Online Stores, Licensed Products, Solution Provider (on rare occasions), Drop Shipping

franchising

Franchising usually combines indirect with direct sales, since the franchisor acts as an intermediary within the brand to be licensed and the franchisee, in turn, often sells the products directly. The main advantage of this sales package is that the entrepreneurial risk is shared among all partners and the franchisee adopts an established and tried-and-tested business concept.

Per:

• less risk for everyone involved
• very good scaling prospects
• Good overview and control over brand identity and sales strategies via contractual safeguards
• large pool of data from potential customers

cons:

• Participation of the franchisees in the bulk of the turnover
• Franchisees have little or no design options for the product and sales

Suitable business model:

Restaurant chains, retail chains, licensed products

The optimization of sales channels – a complex matter

Many companies use one hybrid form the direct and indirect sales channels in order to convince as many customers as possible for the product or service. The sales channels and the associated strategies are in turn closely linked to the marketing channels as part of the marketing strategy.

When optimizing the sales channels, it is always important to ensure that long-term trends are taken into account and that long-term planning follows. In recent years, the market has developed strongly towards digital sales, and physical sales will continue to be put to the test in the future.

For most companies, a tailor-made coordination of the business model with the sales strategy is equally profitable and minimizes risks in order to survive in the future market.

If in doubt, start-ups and entrepreneurs should always seek expert and state-sponsored start-up advice to optimize the sales channels and business model. This can effectively save time in planning and at the same time strengthen the company from within with the help of specialists. You can use our “Find a consultant” service to find the right partner. In many cases, funding can also be applied for, which can be determined using our funding check.