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This is the third in a series on Direct to Customer (D2C). This one explores the financial implications.
All of us in business are part of an end-2-end value chain that ends when the product or service is consumed. The ‘Direct to Customer’ model is one that skips some of the traditional steps that in the past would have been completed by an indirect sales channel.
The key word above is value. Each step in the chain needs to add value for the final customer, if not, it’s a waste of effort, time, and money.
With all of the change that has come over the last few years in how we work, how we communicate, and how we buy, every aspect of our value chains is ripe for review if not downright reinvention.
When you look at the typical sales channel functions, many of the tasks can be achieved without using intermediaries between you and the end customer. Channel Functions include:
What are the financial implications? Most manufacturers and service providers like to see about 20%-30% gross profit. Most sales channels take anywhere between 10% and 50% of the selling price.
In this example, by selling direct to the customer, the manufacturer would increase its gross margin by 210% to $620. The question is quite simply, could they replace the value provided by their channel for less than $420 per sale? In most reseller models the answer is usually, yes.
Besides the obvious financial advantages, my previous blog listed the strategic benefits you can expect by adopting the D2C model.
If you’d like some help evaluating a D2C approach for your current or planned sales activities, let's talk.