For Australian SMEs deciding how to get their products to market, the question of direct sales versus channel distribution – using resellers, wholesalers, or retailers – often comes down to margins. There’s no single answer, as the ‘best’ approach depends heavily on your product, target customer, and business maturity. However, we can analyse the typical margin dynamics to help you make an informed decision.

Generally, direct sales *can* offer higher gross margins. You capture the full retail price, minus your direct costs of sale (marketing, sales team, fulfilment). However, this is a simplified view. Achieving those margins requires significant investment in building your own sales and marketing capabilities. Many SMEs underestimate these costs, particularly customer acquisition costs which are rising across the board.

Channel distribution, while reducing your gross margin per unit, often lowers overall marketing and sales expenses. Here’s what we’ve observed with our clients:

• Leveraged Marketing: Partners often contribute to marketing efforts, sharing the cost of reaching customers. This is particularly valuable for expanding reach into new segments.
• Reduced Sales Overhead: You’re not building and managing a large sales team. Channel partners handle the direct customer interaction and sales process.
• Volume & Velocity: A well-established channel can move product faster and in larger volumes than a direct sales team, especially for established product categories.
• Specialised Expertise: Partners often possess deep knowledge of specific customer segments or industries, improving conversion rates.

We’re seeing a trend towards hybrid models. Starting with direct sales to establish brand awareness and gather customer insights is a smart move. Then, strategically layering in channel partners to scale distribution and reduce customer acquisition costs can be highly effective. Consider a phased rollout, beginning with a select group of partners to test the waters.

Ultimately, a thorough cost-to-serve analysis is crucial. Map out *all* costs associated with both direct and channel sales – not just the obvious ones. This will reveal the true margin picture. We recommend modelling different scenarios, factoring in projected sales volumes and partner commission structures. If you’re unsure where to start, a channel strategy workshop can provide valuable clarity and a tailored roadmap for your business.