GTDC Report Makes Case for Indirect Sales Models

The Global Technology Distribution Council (GTDC) has published a report that makes a case for IT vendors to rely more on distributors to lower costs.

In the wake of the economic downturn brought on by the COVID-19 pandemic debates over whether it is more economical to sell direct or rely more on indirect sales via the channel are once again coming to the fore.

The GTDC report notes that most IT vendors that rely on direct sales do so primarily to ensure as much control as possible over customer satisfaction, messaging and price. However, the report notes control comes at a high price. Full-time employees devoted to sales demand compensation packages that include salary, commissions, bonuses and possibly even company equity.

IT vendors that choose to sell direct also incur the cost of hiring more technical support personnel. The IT vendor in effect takes on all the selling, general and administrative (SG&A) costs associated with bringing any product or service to market, notes GTDC CEO Frank Vitagliano.

Alternatively, IT vendors can rely on channel partners to sell and support their offerings. The two most common approaches are to create a channel partner program managed directly by the IT vendor or rely on distributors that reduce those costs even further by essentially distributed SG&A costs across a broad portfolio of offerings.

Without citing specific examples, the GTDC report says one hardware company has seen an 18- percentage point increase in EBITDA that now represents nearly 50% of total revenue. Another IT vendor saw a 34% increase in revenue after five years with half as many full-time employees on the payroll.

The go-to-market strategy employed by any vendor is obviously going to depend on the nature of the product offered and the relative maturity of the organization, notes Vitagliano.

“There’s a lot of nuances,” says Vitagliano.

At a time, however, when more IT vendors are trying to maximize profitability during an economic downturn that is unprecedented in modern memory it’s apparent relying more on indirect sales via channel partners makes more economic sense than ever.