Opinion

What percentage of indirect sales is the right level?

A recent story in MicroScope has set me to pondering one of the great questions of life. I’m not talking about questions like “is there a god?”, “did life on earth come from Mars?”, “is there life on other planets?” and “how do I get to the multiverse where I can watch Scotland win the World Cup?”.

There are plenty of people looking at those questions already and arguing over the answers. I’m not that concerned about any of them, to be honest, apart from the last one, obviously. Anyway, the question I’m looking at arose from an article about Red Hat in which CFO and executive vice president Charles Peters revealed it had achieved a sales mix of 70% channel and 30% direct sales in its second quarter.

Apparently, 70% channel sales has been a “multiyear goal” for Red Hat, so it’s cause for celebration that the software vendor has achieved this figure. However, Peters warned it might slip back again in the second half of the year because it is “typically the time that we have a higher percentage of our sales coming from the direct channel”.

This would suggest that, overall, Red Hat will not achieve its multiyear goal in 2013. Which begs the question, is it aiming for the right figure? That’s not one I’m going to answer but we shall find out over the next year or so whether it might want to consider revising its goal for channel sales.

Prompted by Red Hat’s experience, I suppose I’d like to know whether there is an optimum percentage for channel sales above or below which a vendor might lose sales. I know there are a number of vendors that profess to be 100% channel but there are many more that include some element of direct sales in their sales mix. The figure for that mix between direct and channel seems to vary by vendor. I assume this is because, as I’ve argued before, certain industry sectors and customer segments expect more vendor involvement than others.

It would be interesting to find out what vendors (and their channel partners) think is the most effective sales mix for their sector or technology. The first assumption from partners would probably be 100% channel but I think we can, for the most part, ignore that. In fact, I think it might be safer to argue that no vendor should have a 100% sales approach based either on direct or channel sales.

So what should it be? And is it ever achievable?

Assuming that the responses, while varied, allow for some measure of direct sales, the other concern is channel conflict. Again, I don’t think anyone can argue there should be no such thing as channel conflict but so long as instances where there is a clash between channel partners and direct sales forces are managed in a way that is fair and transparent to everybody, it shouldn’t be an insurmountable problem.

Unlike finding the multiverse where Scotland won the World Cup in 1974, 1978 and 1982.

This was first published in September 2013

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