To Resell or not to Resell

Reseller definition

The very basic definition of a reseller is another company that, indeed, resells your product, whether it is hard- or software. They purchase the product from you at a discounted price and sell it with a margin on top to the end customer.

There are various flavors of a reseller model – we briefly mention them here for clarity:

Affiliate: a company that does not actively sell your product but will give you a lead or referral and expects a finder’s fee in return.
Agent: an intermediary that negotiates and concludes contracts with customers on your behalf, so you have the contract with the customer. Agents are paid commission on the sales they make, usually on a percentage basis.
Distributor: a distributor can also be a reseller, but it is quite common that a distributor actually appoints resellers and has been given the authority to do so. It does create an additional layer, and this means usually less margin for the reseller (they split it more or less). Also, in case of hardware a distributor often holds stock of your product and spare parts.
Reseller: a company that proactively sells and supports your product. They perform local marketing, do the sales (potentially with your support), implement the solution where applicable and support the end customer.
Dealer/(business) partner: both are considered a reseller as per the definition.
For the rest of this blog, we will use the term reseller.

Your own sales force or resellers?

The most important question is whether to work with resellers in the first place. This very much depends on your ambition, but also your product. For example, if you develop a SaaS solution, you may be able to get enough traction through online sales and marketing because of the low cost of entry for your customers. In case you take a Product-Led Growth approach, the product should be able to sell itself and therefore resellers are not needed.

In case your product is more complex to sell and requires interactions and follow-up with the potential customers, you require a sales force to do so. This requires customer meetings – online or physical, trade shows, calls, quotes, i.e.: human interaction to get to the deal. You can decide to do this yourself, and that makes sense: nobody is more motivated than you to sell this product, and you know the solution inside out. However, if you want to scale your business in various geographies, this requires a bigger investment in staff and resources: you probably need more offices and local staff, certainly if you go to other countries. Since you are most likely still limited in cash resources, this requires a somewhat slower approach: you first need to generate cash flow to be able to afford this or, alternatively, you need more external funding. In the case of global ambitions, you may not have this time or resource.

A solution to this is to work with resellers. Yes, you will have less revenue compared to selling it yourself, but there are advantages: you can scale much faster. You can appoint in any country a reseller that sells your solution. The reseller speaks the local language and has the infrastructure in place.
You need to be aware that if you take this approach, it is very strategic and will alter everything that you do in the company. For example, you need to support and train resellers. In fact, you need to convince (=SELL!) these companies first to become a reseller. The product itself needs to be great, but for a company to become a reseller, the business opportunity for them needs to be as interesting! Your branding, sales management and support structures will be fundamentally different compared to selling directly.

The reasons to go towards the reseller model are faster scaling, global coverage and faster growth.

RESELLER RESPONSIBILITIES

A reseller is a separate company with its own staff, office and profit & loss and usually represents various products from different suppliers to serve a certain industry. Besides the products, the reseller provides additional services, for example, consultancy, training and support.

The reseller has the responsibility to sell your product in a certain region. This can be a country or a part of it or also multiple countries. This is clearly stated in the reseller contract, bearing in mind what is legally possible: in the European Union, there is free trade of products and people for example.

The reseller needs to build the sales pipeline himself and is responsible for the whole sales cycle. The lead generation is also their responsibility: the local marketing power as well as their existing customer base is something that they should use to the fullest. You as the product manufacturer also can play a part here, but we will get to that.

The reseller has an obligation to report regularly to you about the sales pipeline and forecast, which need to be discussed on a frequent basis (weekly, monthly, quarterly, etc) to see if the targets that you have given the reseller can be met.

Once the sale is done by the reseller, they have the obligation to deliver it to the end user. This can either be a simple transaction or a full implementation of your product in combination with their services.

When the end user is operational, the reseller will continue to support the customer through their customer success or support teams. The sales force of the reseller will continue to look after the customer and expand with additional products and services.

Your Responsibilities

First and foremost, you are responsible for product design and development, including new releases or versions of the product, whether it is hard or software. In product development, you should take into account what the resellers get as feedback from their customers, as well as the customers' direct input and of course, your own ideas to make the product unique and competitive.

From a marketing perspective, you are responsible for the overall branding of the product. In case you have multiple resellers in one country, they most likely will market them themselves to differentiate them from their competitors. There are also cases where the reseller represents multiple products for the same solution. In both cases, your branding is suboptimal, and therefore you need to actively brand your product as well.

In a lot of cases, resellers are supported by the product companies to raise awareness, generate leads, etc. Think of support at tradeshows, online campaigns, ads in magazines, etc. This is often done through marketing development funds for the reseller.

Even though the reseller will sell your product, you have the responsibility to support them in the sales cycles. In the beginning, they may not yet be experienced enough. Beware, this experience is not only about the product but also how to sell it. Larger customers may want to talk to you as the product owner or for specific features, and the reseller may also require support in case of larger commercial deals.

One of your biggest responsibilities is the enablement of the reseller. You need to make sure that they fully understand the product and the benefits for the customer. They also need to know the market to sell to, what the sales process looks like, who to approach and how to handle objections.

The marketing departments of the reseller also need to be trained and supported: what campaigns work, what type of trade shows to go to, localisation of marketing material, etc.
You also need to train and support the technical teams on for example onboarding, implementation, customisation and training of the end user.

A very important and difficult task is to manage the resellers, also known as channel management. You need to make sure that the reseller is focused on your solution and that prospects are actively followed up. The difficulty here is that the reseller is a separate company and that their salespeople do not report directly to you. The reseller may have multiple products similar to yours and you need to make sure there is focus.

There are of course multiple ways to keep resellers focussed and motivated. Foremost, the margins need to be attractive for them (although they claim it is never enough..). Focus can further be increased by setting targets with rewards – this can be bonuses, kickback fees or incentives (gifts or trips).

Advantages

The advantages are as mentioned already: the global (sales) coverage of your product is reached much quicker and cheaper through resellers, since you do not have to invest in local offices, sales, marketing and support. The quicker coverage means that you have way more “feet on the street” which will result in faster and higher growth. Another advantage is that the cost and risk is somewhat shifted to the reseller, even though it is in your highest interest that they become successful.

Disadvantages

A potential disadvantage is the lack of focus on your product with resellers. For example, if they resell similar products or if your product is a “side” product in their bigger portfolio. There are things you can do to avoid this, from incentives to making your product their dominant product or the product that gives them the best business potential.
Resellers are also separate companies, which means you cannot manage them as if they were your staff and therefore less control over what they do. You have in a sense outsourced your sales to them and this needs to be managed.

Because they do the sales for you, it also means that you are not in direct contact with the end customer, which certainly in the beginning is a disadvantage since initial feedback is important for you and the product. You can ask the reseller to give you the feedback or get directly in touch with end user, but make sure to include the reseller in this. Your partnership with them is crucial.

In case you decide to work with a distributor who appoints the resellers, you create an additional layer, which can amplify the points above – beware of this.

Critical succesfactors

The key elements of success with resellers are trust and partnership. You need to trust them that they will sell for you and fight hard for your new products. Bear in mind that the reseller also invests time and resources to become successful with your product – they also take risks. You and the reseller are in this together and partnership is therefore crucial. There is a mutual dependency here: if you develop a great product, and they generate great sales, you both will be successful. To maintain this success, the partnership and mutual dependency needs to remain for the years to come. There have been instances where the product company decided to sell to corporate accounts themselves (cutting out the reseller) or lower the margin over the years – be extremely careful here, since this will hurt the trust and partnership. This doesn’t mean you cannot alter your strategy over time but bear the reseller in mind if that partnership needs to continue.

Another key success factor is the (continuous) enablement of the reseller. This obviously consists of the initial training for sales, marketing, technical and support departments, but it needs to continue after this. Sharing case studies and best practices from other regions, for example, will help all resellers.

Channel management is key as well: you need to manage the resellers and track what they do. Build systems for them to report pipeline and forecast. In case of multiple resellers in one region, think of ways to minimise reseller conflict. On the technical side, create easy systems for them to report problems or bugs to you and make sure you are responsive and supportive: the reseller faces the “frustration” from the customer, but you are the one that fix the problem.

The key to your success is to focus on your product within the reseller. In certain cases, you may be their dominant product and focus is less of an issue, but if you are “just” a product in their portfolio or if they sell multiple similar solutions, you need to get focus. This can be done with commercial incentives, but at least they need dedicated sales resources (FTE) for your product.