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← Indirect Channel Economics - How to Build a Startup

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Showing Revision 3 created 05/24/2016 by Udacity Robot.

  1. So now that we will update channel economics for direct sales,
  2. let's go take a look at what the channel economics would look like
  3. if we were selling through an indirect channel, resellers.
  4. So as you could see, we still have the same cost of goods to manufacture the product as before, $33.
  5. Now, what's kind of interesting is if we will look at the R&D, selling costs,
  6. and general administration cost, our R&D might be the same and keeping the lights on the building
  7. might be the same, but our selling costs are lower because we're selling through resellers.
  8. We still needed a direct sales person but this time instead of them talking to every possible end user,
  9. they are actually talking to a few number of resellers.
  10. So let's say instead of $20, our SG&A, sales, general, and admin costs plus R&D this time
  11. is $15 rather than 20, and that the total of getting the product out the door is now $48.
  12. Just like before, our list price is $100 and in the store the end user expects maybe a 10% discount
  13. and so the revenue to the sales channel this time, not to us, is $90.
  14. But this time, we have resellers and the resellers don't work for us.
  15. They're the ones actually selling the product, and they take the difference between $90
  16. and let's say $70, which they're going to pay us.
  17. And do their profit is $20 for carrying, stocking, and reselling our product.
  18. And our profit is just $22 this time because we're selling through someone else.
  19. But remember, our costs were lower.
  20. So one of the tradeoffs in using what's called an indirect channel is that your selling costs
  21. are lower but you're giving a big chunk of your profit to other people not part of your company.