An indirect channel is a go-to-market model in which a vendor sells its products or services through third-party partners rather than directly to end customers. The intermediaries may include resellers, value-added resellers (VARs), distributors, managed service providers (MSPs), system integrators, agents, and affiliates. The indirect channel is the foundational concept behind channel sales: the vendor builds the product, and partners carry it to market.
One-tier, two-tier, and hybrid structures
In an indirect channel model, the vendor transfers some or all of the customer-facing sales, marketing, and service activities to partner organizations. The structure varies by the number of intermediary layers and the type of partners involved:
One-tier indirect
The vendor sells directly to a partner (reseller, VAR, or MSP), which then sells to the end customer. The vendor manages the partner relationship, provides enablement and incentives, and may support the partner on specific deals. This model is common for vendors with a manageable number of partners that can be supported directly.
Two-tier indirect
The vendor sells to a distributor, which sells to resellers, which sell to end customers. The vendor manages a small number of distributor relationships, and the distributors manage the much larger reseller base. This model is common in IT hardware and software markets where the vendor needs broad geographic coverage across hundreds or thousands of reseller partners.
Hybrid models
Most vendors operate a combination of direct and indirect channels, with each channel serving different customer segments, deal sizes, or geographies. The indirect channel typically handles mid-market and SMB customers, while the direct channel covers enterprise accounts.
Economics of selling through partners
The indirect channel exists because of a fundamental economic reality: it is typically cheaper to sell through partners than to build a global direct sales and service operation. For the vendor, the indirect channel provides:
- Scale: Partners multiply the vendor’s selling capacity without proportional increases in headcount or fixed costs.
- Market access: Partners bring existing customer relationships, local market knowledge, and geographic presence that the vendor would need years and significant capital to build on its own.
- Variable cost structure: Partner compensation (margins, commissions) is tied to revenue production. If a partner does not sell, the vendor does not pay. This contrasts with a direct sales force, where salaries and overhead accrue regardless of production.
- Expertise: Specialized partners (VARs, SIs, MSPs) add domain knowledge, technical skills, and service capabilities that enhance the customer’s experience beyond what the product alone provides.
- Speed: Launching a product in a new market through existing partners is faster than establishing a direct presence from scratch.
The tradeoff is reduced control. The vendor depends on partners to represent the brand accurately, sell effectively, and deliver a good customer experience. When partners underperform, the vendor’s revenue suffers, but the vendor’s ability to intervene is limited by the independent nature of the relationship.
Building, measuring, and scaling an indirect channel
Building an indirect channel
| Stage | Key activities |
|---|---|
| Program design | Define partner types, partner tiers, incentive structures, and rules of engagement |
| Recruitment | Identify and recruit partners that match the vendor’s ICP and market priorities |
| Onboarding | Provide training, portal access, sales tools, and initial enablement |
| Enablement | Ongoing training, content, co-marketing support, and sales tool updates |
| Activation | First deal registration, first pipeline, first closed deal |
| Scaling | Expand the partner base, deepen engagement with top performers, manage inactive partners |
Indirect channel metrics
Key performance indicators for an indirect channel include:
- Partner-sourced revenue: Revenue from deals originated by partners.
- Partner-influenced revenue: Revenue from deals where a partner contributed to the sale but did not originate it.
- Activation rate: Percentage of recruited partners that have completed at least one transaction.
- Revenue per active partner: Average revenue generated by partners that are actively selling.
- Deal registration volume: Number and value of deals registered by partners.
- Time to first sale: How long it takes a newly recruited partner to close their first deal.
Common challenges
- Partner mindshare: Partners sell products from multiple vendors. Winning a meaningful share of the partner’s time and attention requires competitive margins, strong enablement, and consistent support.
- Pipeline visibility: The vendor often has limited insight into partner pipelines until deals are formally registered, which makes revenue forecasting less reliable than in direct models.
- Channel conflict: When the vendor’s direct team and indirect partners pursue the same accounts, friction results. Clear rules of engagement and deal protection policies are essential.
- Quality variance: The customer experience depends on the partner’s competence. Wide variation in partner quality is a persistent challenge.
- Complexity at scale: Managing hundreds or thousands of partners requires investment in channel operations infrastructure: PRM systems, training platforms, incentive management tools, and channel account managers.
Indirect channel vs. direct channel
The indirect channel trades margin and control for reach and cost efficiency. The direct channel offers full control over the customer relationship and retains the full margin but requires the vendor to fund all sales and service functions. Most vendors with significant revenue operate both models, allocating customer segments to the channel that serves them most effectively.