What is the Difference Between a Direct and Indirect Channel?

It’s not just a transaction, it’s a relationship

In my 25-year career in consulting and selling IT solutions most of my time has been as a direct employee of a company. As a direct employee and sales consultant, I received healthcare benefits as well as a salary complemented by commissions or bonuses. My product focus was simply what my company offered, and I would tailor that offering to fit the customer’s needs. There were occasions when I had to take the opposite approach due to the limitations of my company or an offering. I needed to tailor my customer’s needs to my solution. Recently I’ve changed to the indirect channel with an independent organization that allows for many suppliers and their vast array of solutions.

Most IT and telecommunications suppliers utilize both direct and indirect channels. Some, I have found don’t manage this well, which results in channel conflicts. A channel conflict is when a direct and an indirect consultant compete against each other for the same customer. Many times, they are proposing the exact same solution. This situation leaves only two differentiating factors for the customer, relationship, and price. When there is no clear relationship advantage for either consultant then the supplier will be under pressure to lower their price. In this scenario the supplier reduces their margins due to the conflict

This has caused most suppliers to create strict rules of engagement with their channel partners. Like the technologies these suppliers provide, some suppliers manage the channel better than others. In future articles, I will detail some of the suppliers I have had experiences with and how they have dealt with or avoided channel conflict.

My experience in both channels has found the indirect channel to provide the best alternatives and solutions for the customer. To follow are the three primary characteristics of an indirect consultant that create their competitive advantage.

Better overall industry and solutions knowledge

When I first left the world of the direct consultation and sales channel I was concerned I wouldn’t be able to stay abreast of current technology and trends. After all, the company I worked for had provided all my “training” to this point. I soon discovered my concern was unfounded and the exact opposite was true. What I have discovered as being an independent consultant is that there is an abundance of information available today to all that take the time to seek it. Each supplier I partner with has their own product training and information available, as well as general industry information, to keep their representatives current.

My initial concerns have also led me to seek out and find an unbelievable amount of unbiased technical information available on the web and certain podcasts. I now listen to my favorite “cloud-computing” podcast at the gym in lieu of music. I receive an hour of high quality, technical and current information on cloud computing every day. What I initially perceived as a shortfall of the indirect model has turned into an advantage.

An unbiased approach to customer challenges and solutions

When the consulting partner you’re working with has a greater knowledge and expertise, coupled with larger solution sets to choose from you are with the right partner. Almost every provider I am aware of in telecommunications and IT utilizes the indirect channel. They embrace it due to its lower cost and increased flexibility in their consulting and sales teams. Many suppliers align with “master agents” allowing the indirect consultants to work with many suppliers and only one partnering agreement with the master agent. If an indirect consultant discovers a solution provider that is not aligned with their master agent most times they can engage directly with that provider to establish a relationship.

Compensation models for direct vs. indirect

I am usually not comfortable talking about compensation; I would not consider bringing it up as an advantage for the consultant. However, the typical indirect consultant compensation plan benefits the customer. That is, if the customer is looking for a long-term relationship. The standard compensation plan for the direct employee is based on a one-time commission or bonus for bringing a new customer to the business. This creates an incentive to move on and find the next prospect, not to build the relationship with that client. Compensation plans for indirect, or independent consultants, are paid as a small percentage of the monthly recurring revenue (MRC) created by bringing the new business to the provider. These payments are in the form of residuals that continue as long as that customer stays with that provider. From the inception of the agreement this incentivizes the consultant to stay in close contact with the customer and assure their satisfaction level stays high. For this reason, the independent consultant tends to provide a better level of service that is more consistent to the customer.

There are several different ways to find the right partner to lead you through the process of making the right decisions for your IT infrastructure. Most companies will choose to work with a consultant that in unbiased for providers, has a deep industry knowledge and is incentivized to stand behind the solution for the long run. The describes the indirect consultant like Two Ears One Mouth IT Consulting.