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Channel Sales or Going it Alone: Pros and Cons

Starting a business can be fun. Deciding on a clever name, designing a clever logo, giving yourself a clever title like “Director of Cleverness” is all a rush. And don’t get me started with spreadsheets that project 5 year revenue at $10 million.  What could be better than that?
But once you are done with all the cleverness, it is daunting to start with zero customers and zero revenue. In the world of eCommerce there are some quick ways to find customers.  But are you setting yourself up for failure by taking advantage of these options?
Boiling everything down to the simplest of categories, you have two options:
1) Leverage existing marketplaces such as eBay or Amazon, also known as channel sales.
2) Build your own website with your own brand, and sell your products direct to consumers.
Neither option is mutually exclusive, so finding a balance between the two is where most businesses end up.  But with limited time and limited funds, which is the best? Here are some pros and cons of each:

Option 1: Pay commissions, not advertising fees

The first option is the path of least resistance. By taking advantage of established sales channels such as Amazon, eBay, Etsy, Buy.com and a dozen others, you are no longer responsible for finding your customers. This comes at a price, in the form of the sales commission or listing fee that the sales site takes. On the upside, you only pay once your product sells, so it is relatively low risk.
Pros:
  • Built in customer base
  • Marketplace reputation and guarantees create trust
  • No development cost
Cons:
  • Usually higher long term customer acquisition costs
  • Possible lower margins from marketplace competition
  • Limited visibility of customer data for future promotion
Channel sales work especially well if you are selling name brand products from wholesale or liquidation suppliers.

Option 2: Advertising and Direct Sales

The next clear option is to setup your own web shop. There are many options that have made this easier than ever.  Shopify, BigCommerce, SquareSpace all have easy to use options.  Many of these services charge a percentage of each sale in exchange for the use of their technology.  Other services, such as Magento or WordPress/WooCommerce offer free software, granted you have the server space and know-how to get it up and running. When building a new brand for a specific product or service, the control you have by creating your own presence is invaluable.
But once your web store is up and running, you still need to go find customers. This normally comes in the form of advertising such as SEO, Paid Search, Social Media promotion, or traditional media.
Pros:
  • Higher Margins
  • Own the customer data for future promotion
  • Complete control of listings, including reviews, video, etc.
Cons:
  • Initial cost or time for development
  • No trust in your site or brand
  • No site traffic on day 1.

Balancing Act: My Not-So-Secret Recipe

As you see the pros and cons for each list mostly mirror each other.  What is a con on one list is a pro on the other. How do you get the best of both worlds? Simple. You live in both worlds.
Some of the biggest brands in the world sell on their own web shops and on Amazon or eBay. The reason why is clear to see in the pros and cons list- certain customers won’t find you on your own site, or won’t trust you when they do.  Other customers will find you and buy from you, so you are giving away high margin prospects by only serving marketplace customers. By operating your own storefront, you also have the opportunity to convert a channel customer into your own customer. You will have customer email addresses available to you if someone pays via PayPal, so use this information to market to channel customers in the future.
Selling both direct and on channels does present some challenges, such as inventory management and fulfillment.  Luckily there are several affordable tools available to help address those needs specifically.  They will be addressed in a later post, or email us at info@garageprofits.com if you’d like a sneak peak.

The Big Goal

Ultimately, whatever go-to-market strategy you choose should be focused on the following goals.
– What market will provide me with the greatest long-term success?
– How can I reduce my cost to acquire a new customer?
– How can I maximize the lifetime value of each new customer?
– How can I maintain the highest margins on the goods I sell?
By keeping these goals in mind, the strategy you choose will help guide you to ultimate success.
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