Most founders think about distribution too late, somewhere after the product is built and before anyone’s bought it. The route your product takes is your distribution channel, and it does more work than founders expect. Margins, customer relationships, growth rate. All downstream of this one decision. So, how do you decide?
Direct and indirect distribution channels
Direct means you sell to customers yourself. Your own website, your own store, over the phone, or some mix of those. Nobody sits in the middle, so you keep the full margin, after doing the entire job of finding buyers, convincing them and getting the product out the door.
Indirect means a distribution partner does part of that for you. They stock and sell your product, or they deliver your service under an agreement with you, and they take a fee or a margin for it. You give up a slice of every sale along with some say over how the product is presented. What you get back though is access to a sales operation that already exists.
Peter Deans makes the point in Startup Toolkit: A Step-by-Step Guide for Founders that most startups sit somewhere between the two, and plenty move along that spectrum as they grow. Whatever you choose now is a decision for the next couple of years, not a life sentence.
The four things to weigh up
1. Where your customers already shop
If your buyers already spend their money inside a particular marketplace, retailer or platform, it’s almost always cheaper to show up where they are than to convince them to come somewhere new. Changing a buying habit is slow work and it costs real money, which most early-stage businesses don’t have to spare. This factor tends to override the other three, so work it out first.
2. What you’re actually selling
A $30 candle can sit on a shelf and sell itself. A $40,000 piece of equipment with a six-week install can’t. Complex or highly customised products need someone who can answer proper questions and handle objections, so the expertise inside a channel matters more than the size of it. A partner with two salespeople who understand your product will do better than one with two hundred who don’t.
3. What a sale costs you
Work out what a single sale costs in each channel you’re considering, and put the partner’s cut in the same column as your ads, shipping and packaging. Margins vary enormously by category, so ask early rather than assuming you know what’s standard.
This catches people out, mostly because it happens slowly. A partner takes enough of the retail price that the product stops making money, revenue still looks healthy on the top line, and nobody notices for two or three quarters.
4. Whether direct is even an option
Selling direct reads better on paper. It also assumes you can reach enough of your customers on your own at a cost you can afford, and plenty of businesses can’t. If that’s your situation, using someone else’s distribution is simply the version that works, and there’s no reason to treat it as a consolation prize.
Let’s do the maths
Say your product retails at $100 and costs you $35 to make and ship.
Sell direct and you’re keeping $65 a unit before marketing and staff. Move 500 units in a year and that’s $32,500 gross. Spend $15,000 on ads and a part-time person to get there, and you’re left with $17,500.
Now run it through a partner taking 40%. You’re paid $60 a unit, so $25 after costs. If they shift 3,000 units because they already have the shelf space and the foot traffic, you finish the year at $75,000 with far less work on your side.
That’s a strong argument for going indirect, as long as the volume is real. It comes apart fast when it isn’t. Same partner, same cut, 800 units instead of 3,000, and you’re at $20,000 with no customer list to show for it.
So ask what volume a partner will commit to in writing, then build your model on a number below that. What they quote in a first meeting is optimistic by design.
Your checklist
- Map how your customers already prefer to buy, and start there
- Work out whether your product needs selling or sells itself
- Cost out one sale in every channel, partner margins included
- Check whether selling direct is realistic for you at all
- Compare volume and margin across both options using conservative numbers
Distribution is part of your operating model rather than a marketing detail, and it’s worth settling before you hire salespeople or sign anything long. It’s far easier to change your mind at the spreadsheet stage than eighteen months into a two-year agreement.
Want the full picture? Distribution channels sit in the Sales and Marketing section of the Startup Toolkit: A Step-by-Step Guide for Founders, alongside pricing, your funnel and your go-to-market plan. Or grab the Startup Bundle and get the book plus the Cash Flow Forecast template, so you can run the margin maths on every channel before you commit.
