How to Diversify Your Ecommerce Sales Channels
Diversification in business is critical if you want to create stability. And ecommerce business is no exception. However, most ecommerce businesses are extremely under-diversified and don’t even know it. If that’s you, it means your revenue, business, and team are at extreme risk. If you want healthy and consistent growth, you MUST diversify.
The number one area to diversify is among your sales channels (where your potential customers come from). There are actually 5 essential sales channels that every ecommerce business should have: ecommerce, wholesale, marketplace, affiliate, and offline.
But, what is the ideal mix of those sales channels? And if you are not diversified, what are the steps to get there?
In this article, we’re going to answer those questions so that you can quickly get on the path to creating a healthier business that won’t get destroyed if disruption comes your way— for example, if your wholesale partner decides to squeeze you on price or Amazon decides to remove your products for no apparent reason.
As a note, while diversification is extremely important to healthy business growth, there are other factors at play as well. Healthy growth is driven by strategic systems and processes like thorough planning, diversifying sales channels and marketing, increasing customer lifetime value, and more. All of this will make your business more sustainable and profitable in the long run. If you’re looking for actionable ways to achieve healthy growth, sign up for our 90 Day Healthy Growth Challenge. We’ll send weekly tips straight to your inbox for you to implement, plus be available to answer questions along the way. Email growth@metacake.com and we’ll get you on the list.
Why is it important to diversify your sales channels?
The number one reason sales channel diversification is important is to create stability, consistency, and resilience. If all of your eggs are one basket and you’re relying solely on your ecommerce store, marketplace, wholesale, or affiliates, you are ripe for disruption.
Even if business is good, it’s important for direct-to-consumer businesses to have diversified sales channels. In fact, when times are good, that is the time to diversify, because when times are hard, it’ll be too late.
When branching into a new channel, it will probably not be as easy or as fruitful as your primary channel was at first. Any new channel will take commitment and should be seen as an investment. Even so, it’s critical to your brand’s long-term success. The growth of a new channel can be slow, so the time to get started is right now.
Identifying where your business is most reliant now will determine what steps you take next. Let’s dive into our 7-step process for diversifying into a new sales channel.
7 Steps for Diversifying into a New Sales Channel
1. Identify Clear Goals
As with any new initiative, diversifying into a new sales channel should start with the end in mind. What type of company are you trying to become? That will direct which channel to look into next. Taking this time to make sure you are really clear on your goals with this new channel will help determine a strategic, efficient path.
2. Know Your Current Customers
The next step is to review your current customer base. Hopefully, you have already developed customer avatars and know who your customers are. Now it’s time to review their purchase behavior and where they shop because this will influence which channel you add next.
As a note, just because your current customers don’t seem heavily populated around a particular channel doesn’t mean you should exclude it from the sales mix altogether. It might influence the initial channel you choose to add, but ultimately every DTC business should be able to find opportunities in all five channels (ecommerce, marketplace, wholesale, affiliate, offline).
3. Clarify the Priority of Each Sales Channel
You will also need to be clear on the ideal channel mix, how to prioritize channels, and what percentage of revenue each should contribute. As far as prioritization goes, a good rule of thumb is that channels where you have the most control should carry the highest percentage of revenue. Channels where you have the least control should carry less weight.
Typically we recommend the following channel mix:
Ecommerce: 40% (or more)
Marketplace: 20%
Wholesale: 20%
Affiliates: 10%
Offline: 10%
The key here isn’t necessarily to hit these exact numbers, but rather to achieve this hierarchy in terms of priority and weight. If one channel has more control than it should, don’t pull back on that channel. Just work to elevate the influence of the others.
4. Make a Plan
Determine where you are today (what channels are present and how much influence they have on the overall business) and then make a plan for investing in a new channel. If you’re not currently DTC-led, investing in ecommerce is your next step. This needs to lead the way for your business long-term. If ecommerce is currently your main channel, adding a marketplace or wholesale channel may be a good next step.
5. Determine the Benefits of the New Sales Channel
One of the best parts of a balanced channel strategy is the way the channels can benefit each other. It may take some time to see a new sales channel thrive but stay motivated with the awareness of the lift it can bring to existing channels. For example, getting started on Amazon may take away from some DTC sales, but it may also open the door to new customers. Starting a retail or wholesale channel might add some complexity to cash flow, fulfillment, and staffing, but it can also have a lift on the ecommerce channel because of increased visibility and awareness. For more upsides and downsides to each sales channel, check out our post on the five essential sales channels for any consumer product company.
6. Resource Your New Sales Channel
As you might expect, it’s going to take time, money, and expertise to successfully launch a new sales channel. Don’t fall into the trap of thinking the new sales channel is a failure if it’s not producing profit right away! This is essentially a new type of business that requires a new strategy, so it will take time and commitment on your part in order to grow. Determining the upside (step 5, above) will help you push through the early stages.
7. Pace Yourself
All five sales channels play an important role in your DTC business, but that doesn’t mean you need all five channels right away. Be strategic in selecting your next endeavor, paying close attention to where your customers are (step 2) and the ideal channel mix (step 3). Intentionally growing and investing in one new channel at a time will be how you find success in the long run.
The Time to Diversify is Now
If you’re looking for a business that achieves stable, consistent, healthy growth, diversifying your sales channels is a must. Investing in new channels while business is good will ultimately provide lift for your existing channels while also protecting your business against future disruption.
