Sales channels: Your options

1. Understanding sales channels

A sales channel is the method that you use to sell your product or service to your customers.

To identify the best sales channels for your business, you need to establish the most cost effective way for your customers to hear about your products and services, and how and where customers want to buy them. This will involve speaking to potential customers to find out how they buy products similar to yours, and reviewing competitors to see how they get their offering to market.

The more sales channels you use, the more customers you can reach. But each channel adds costs and needs resources to manage them properly. If you add a new channel only to find it attracts sales away from an existing channel without bringing in extra sales, you'll be increasing your costs unnecessarily.

This guide introduces the most common sales channels and their suitability for different products, markets and business stages.

2. Distance selling

Distance selling is the sale of goods or services, without direct face-to-face customer contact. Nowadays, distance selling generally involves selling online, but it also includes selling by phone, mail order, or digital television. You can use distance selling for:

• reaching a higher number of customers

• covering a wider geographic area

• managing repeat orders from established customers.

It is often very effective for simpler, lower cost, standardised products, with a short sales cycle, where customers know what they’ll be getting. It can be harder to demonstrate more complex products. However in ecommerce, the increased use of photography and video means that customers are now happier making more significant purchases remotely, such as furniture and art. 

Distance selling also lends itself to digital products - intangible products and services such as ebooks, software or online training courses..

Cost

Costs related to sales are far lower than if you visit customers, or have retail premises, although you will need to invest in promotion to support those sales, especially if you have no premises benefiting from natural footfall as people walk past. 

Building relationships

It can also be harder to build a relationship with customers through distance selling, however technology has improved this, with the likes of web chat complementing the option of phone calls to provide quick responses to straightforward questions. Video calls can be used for providing more personal information to people many miles away, in particular for bespoke items. Marketing automation can guide customers through stages of the sales process.

Legal requirements for distance and online selling

Distance selling

There are specific rules around distance selling which apply to most goods:

• The information you must provide before the order is placed, such as your business name, contact details and address, product description, delivery and pricing information and the customers’ rights to cancel and how to do that. 

• The contract you must provide after an order is placed and the requirement to deliver the goods within 30 days.

• When you need to accept returns and give refunds. Remember that with distance selling, customers have a right to cancel their order for a limited time even if the goods are not faulty.

Online selling

For online selling there are additional rules. For example:

• ensuring it is clear that customers must pay when making an order which can be done with clear buttons such as “pay now”

• provide the options and associated costs for delivery

• give customers a reasonable opportunity to correct any errors in their order.

Digital products and services have their own requirements such as ensuring customers understand that once they download content they will lose their right to cancel and that they must agree to download before the download begins.

Exporting goods

If you are exporting goods or selling digital services abroad, the UK Government has outlined the steps you need to take. You should also consider:

• do you have the financial and other resources to exploit the market?

• have you done the necessary market research?

• do you understand local regulations?

• how will you handle delivery and payment?

• how will you provide after-sales service?

You may want to work with a distributor or agent who already has the local market knowledge and contacts that you need.

3. Face-to-face sales

Face-to-face sales is when you sell your product or service to your customers in-person. It is used in different contexts, such as when:

• the customer visits you, e.g. a physical shop, or a produce stall at a farmers market or fair.

• you visit the customer, to establish initial contact with a key target customer e.g. selling an IT solution to large businesses in a specific sector.

• or a combination of approaches, where the customer visits your premises in the first instance, e.g. a kitchen or bathroom showroom, and then a site visit to the customer is needed to finalise the sale to suit their requirements.

Most businesses at some point will use face-to-face sales. While it is especially useful for high-value, complex bespoke products and services, it can be used to help test and launch a new business, product or service - even if you intend to use distance selling or other channels in the longer term. 

Initially, often the founder of the business is the best (or only!) person who can lead and manage face-to-face sales, as direct contact with the business owner can reassure potential customers about a new business or product. Then, once the business grows, if face-to-face selling is your main channel, dedicated sales staff may need to be recruited.

Selling your products direct to the customer, face-to-face, offers several advantages as you can:

• explain and demonstrate complex products

• learn more about what the customer needs and wants

• build a personal relationship

• more easily negotiate the prices and the terms of the sale.

However selling face-to-face can also be one of the most expensive channels due to costs associated with:

• higher staff levels

• commission payments

• travel 

• premises.

Careful management will minimise these costs, for example, planning trips so several customers can be visited in a single area so a travelling salesperson doesn’t spend a whole day on the road for just one meeting.

The value brought by face-to-face selling should be considered over the longer term. For example, the costs of face-to-face sales may outweigh the value of an initial order. But if the customer then makes several repeat purchases, the expense will be justified.

4. Retailers and marketplaces

Even if you have your own shop premises - physical or online - you could increase the number of customers you reach if you sell through other retailers or marketplaces.

If you produce a limited amount of a niche product, you may want to approach small independent retailers directly. However as production increases, don’t forget about larger retailers such as department stores and supermarkets. As there is increasing customer interest in buying locally, some supermarkets have programmes for local producers meaning small businesses can benefit from being able to supply supermarkets directly, rather than going through intermediaries. The contracts and payment terms may be adapted to suit smaller producers.

Some larger retailers mainly have an online presence and they may also be interested in niche products instead of just well known brands, so it’s worth checking their websites.

Otherwise, online marketplaces such as Etsy, Not on the High Street, eBay and Amazon can offer new routes to market, enabling you to benefit from the traffic already on their platforms and the infrastructure they provide, such as managing payments and returns, and insights from analytics. You will incur costs to have a storefront, list products, and commission but this may be more beneficial than setting up and driving traffic to your own website.

5. Selling through intermediaries

If you want to test a new product or market, manufacture large quantities of a product, or sell overseas, it’s worth understanding the role of intermediaries in your market (such as wholesalers, distributors and sales agents). 

As intermediaries have local knowledge and trade connections, this can be a more cost effective way of reaching your customers than selling to them directly. Some intermediaries have multiple roles covering one or more of wholesale, distribution, or as a sales agent.

Often large retailers and online sellers will only deal directly with intermediaries rather than individual suppliers, so the only way to reach them will be to supply intermediaries who already have a relationship with those retailers.

When managing your relationship with intermediaries such as distributors and agents, you must be aware of your responsibilities under the Bribery Act.

Wholesalers

Wholesalers buy bulk quantities of products at a lower price direct from suppliers and manufacturers, or via distributors, then sell them to other businesses such as retailers at a higher price, but often still with a bulk discount. 

Some wholesalers focus on a single product or category of products and others carry a wide range. Often they will handle competing products. It is easier for large retailers to buy many products in large quantities from a few wholesalers, rather than buying directly from hundreds or even thousands of smaller businesses.

To sell your products to wholesalers, you may need to have a sales pack ready, which includes key details such as your product’s USPs, your mission, and your marketing plans, along with key sales data, profit margins, and demand for the product. 

Distributors

Compared with wholesalers, distributors may have a closer relationship with producers and manufacturers and often take care of warehousing, exporting and transportation. They take ownership of the goods, so are motivated to promote those goods to wholesalers and retailers. As the contract with the retailer or end customer is with them, they are responsible for customer service. They may avoid stocking directly competing products.

Distributors will be more enthusiastic if there are high profit margins for them, but setting too low a price will eat into your own margins. Distributors will be keener to stock and sell products that their customers will be asking for, so ensuring your advertising is effective is important. 

Distributors (and wholesalers) also operate in markets for intangible digital products such as software and games, and many businesses will purchase their technology through IT resellers which are a type of distributor.

In some cases, the distributor is a tech platform. For example IT departments of large organisations in industries such as healthcare cannot manage the purchasing of single applications one by one and deal with individual suppliers, so they may purchase a range of apps from platforms dedicated to the needs of organisations in their sector. 

The terms of the supply relationship should be covered in a written contract which might include:

• how much stock the distributor will hold

• what the distributor will do to promote your products

• how quickly you can resupply and minimum order levels

• whether the distributor has exclusive rights to your product (for example, in a particular territory)

• what happens if either you or the distributor want to end the relationship

Sales agents

Sales agents differ from distributors as they act on behalf of your business when negotiating sales and contracts between your business and retailers or end customers, and they don’t take ownership of your goods. You retain the relationship with the customer, and control of the terms of sale. (In contrast, a distributor buys the goods from you, then holds the contract and relationship with the retailer or end customer).

The benefit of using a sales agent is that it saves you having to recruit, train and finance your own employees, and agents should already have the necessary contacts and skills. In general, agent commission rates will be lower cost to you than the margin a distributor takes, as the agent is not taking on the risk of owning and storing the stock.

Sales agents can help you:

• build sales without heavy investment

• reach specialist and overseas markets.

A clear, written agreement is essential. It should cover:

• what 'territory' the agent is responsible for - e.g. a named foreign country

• whether this is exclusive (you could be barred from selling directly, or using any other agents in that territory)

• how the agent will be paid (usually commission on sales)

• whether you will meet any of their expenses

• what rights you have to end the relationship

• what compensation payments you might have to make if you end the relationship.

Legal considerations

Agents can be businesses or individuals. An individual agent acting for you in the UK could legally be seen to be an employee. You would be required to treat the agent in the same way as other employees - e.g. deducting income tax under PAYE (Pay As You Earn) and paying National Insurance contributions.

Even if an individual agent is not an employee, you may be:

• held responsible for the agent's actions

• responsible for any shortfalls you cause in the agent's earnings - e.g. if you fail to supply adequate stock.

European and UK law can make it difficult to terminate an agency's contract without paying compensation. This could be as much as two years' expected earnings.

Before entering into any agency agreement, it's a good idea to take legal advice.

6. Licensing your product

Licensing-out

If you have developed a product, you hold the intellectual property (IP). You can become a licensor and “license-out” your product which means you give permission to another organisation to manufacture and sell it. (This would be a breach of your IP rights without a license.) 

This type of collaboration can help you launch a business idea quickly and sell your product in markets you could not reach yourself, perhaps overseas. You will receive a royalty which is often a percentage of sales. The percentage will vary according to factors such as whether you are offering exclusive rights, or licensing to other businesses too. 

If your business idea is new, licensing can be a great way to test the market, but it will take more work to find a company that will license your product and pay you a royalty. To test interest from potential licensees, you may need to create a prototype or concept drawing of your product with documents that detail your fresh approach, new strategy, or whatever differentiates your product from those that already exist.

Licensing-in

You can also “license-in” IP from another organisation which you could use to develop your own product and service offering. This might help you to reduce your costs relating to research and development (R&D). 

Obtain legal advice

Before you find any licensing partners you should make sure your idea is proprietary - made, offered, or sold only under the exclusive rights of a manufacturer or seller. You should also research potential partners and industry standards.

You should seek legal advice and use a non-disclosure agreement to protect your interests. You should also obtain some form of intellectual property protection for your idea.

The Government offers checklists for what to consider and a skeleton licence.

7. Sales channels management

Using a combination of sales channels can increase the opportunity to reach new customers, provided they are carefully managed.

Most channels - other than face-to-face sales - distance you from the customer. This means communication becomes a priority. You need to make sure:

• the channel gets all the necessary information across - whether this is a sales agent or a direct mail letter.

• customers trust you to deliver quality products or services.

Be particularly careful if more than one channel reaches the same customer. For example, suppose you sell books at your shop and also online. How will customers react if they find you charge different prices? How will agents or distributors react if you compete with them through other channels? 

You should:

• create a plan to manage your sales channels

• regularly review how each channel is performing

• look at how you can support the channel - with advertising, customer service, and so on

• compare the sales the channel provides against your additional costs

• consider whether sales through that channel are new sales, or sales you would have made anyway.

Finally, whichever sales channels you use, you will capture customer data during the process and you must comply with all GDPR and data protection obligations when gathering, storing and using the data of prospects and customers for the purposes of marketing or sales.

Read our guide Selling online: the basics for more information about sales.