While you may have started your own apparel brand as a side hustle, in the back of your mind is a dream of taking this little side hustle to the big leagues. If you want to go from a small concern to a clothing empire, one of the most important decision you will make is the sales channels that you sell your products through.
“When you are small, there is no better way to get bigger than working alongside a bigger partner.” – a really smart person
I do want to quickly note that these channel recommendations are in addition to setting up a direct sales channel, a way for your customers to purchase your products directly from you. (hint hint, your own website, like Shopify.) While sales channels can be great at driving awareness and acquisition, you will typically make the best margin, and build the best customer relationships selling direct to your customers.
What is a sales “channel” and why is it important to scale?
A sales channel is an environment to get attract new customers and receive ongoing sales. In most cases sales channels are owned or controlled by third parties, so you should expect that each sales channel has it’s own set of rules, costs, and benefits. Some will be a good fit for your clothing line, others may not, but before we get into how to pick the best channels to scale your brand, we gotta be on the same page about “scale.”
Scale means a rapid pace of grow that is unencumbered. It typically refers to exponential as opposed to linear growth. Take email marketing for example, it takes about the same time to email 10 customers as it does to email 10 million customers. For this reason, email marketing is considered to be a tool that can be scaled extremely well. On the other hand, if you have been building your email list for your brand, you know it can be a long road to grow a huge email list. The biggest encumbrance to scale with email marketing, is strategies to rapidly grow your list. Now that we are on the same page about channels and scale, let’s understand why channels are important to scale.
The reason why picking the right channels is the single most important factor to scale is because finding and attracting new customers is typically the biggest challenge that any new brand will face. Setting up channels for your brand is the most direct and powerful way to ensure your brand is consistently being exposed to new customers and making sales. Lastly, its important to note that you can easily stack channels as well, just because you have one channel that works well does not mean that you cannot add more channels.
Ok, so you are starting to see why sales channels are important for your brand, so let’s think through how to evaluate and pick channels.
The 3 Most Important Factors To Find Good Channels For Your Brand
How to think about “effectiveness” of sales channels.
The most important factor in selecting a channel is how effective is the channel in selling your product and finding you new customers. If a sales channel isn’t making a significant amount of sales for you, regardless of other factors, it probably isn’t a good fit for your brand and you will likely need to keep looking for a different sales channel that you can use to anchor your brand.
It’s important to note that for each sales channel, there are likely things that you will have to do to make that channel effective for you. Since most sales channels are controlled by 3rd parties, each one is unique and may require a different set of tactics and strategies you need to use to make the channel work for you. For example, if are going to use an online marketplace to post your products, it’s likely you will need to setup your products on that marketplace, provide good product photos, provide support to customers directly in the marketplace, etc. In most cases, your channel partners will inform you of the tactics that work best in their environments to drive sales. Here’s another quick example, if you want to sell through retail boutiques it maybe required to provide a nice display rack for your products and it will certainly be required that you produce your products upfront, as opposed to on demand.
Ultimately, you will need to find and setup channels that will drive sales and customer acquisition for your brand and you need to keep an open and creative mind to the tactics you need to execute to ensure you channels remain successful.
What is “spillover” and why it matters
The next important point to consider for any channel is “spillover.” Let’s take a moment to understand spillover as it’s an important aspect in selecting channels. No channel is perfect at selling your product through to it’s customers, right? So for every 10 possible customers that a channel introduces your brand to, only a small % of them will purchase, maybe 1%, maybe 25%, but it’s never 100%. The key question is what do all the people do that don’t convert?
Does the channel try to sell those unconverted customers a different product (maybe a competitor’s product)? Or is there an opportunity for that potential customer to seek your brand out in your direct channel (your website)? If the channel you are working with creates significant spillover, customer’s interested in your product looking to buy it directly from you, it can be a huge opportunity for your brand.
Some sales channels try to regulate and reduce spillover to limit your customers coming directly to you. Remember the channel wants to be “the source” for your products. And they can reduce spillover in many ways. A newly famous example is Amazon’s attempts to limit sellers on their platform from offering their products in other channels at reduced prices. This practice has landed Amazon in hot water with a recent antitrust lawsuit in the state of California. Depending on the channel, there maybe tactics you can do to improve your brand spillover and special consideration needs to be made to increase your spillover as much as possible, while still staying in the good graces of the channel operator.
A final point of consideration for spillover, is evaluating how much the channel supports or allows you having a direct relationship with the end customer. Are you provided the customer’s contact information when they place an order through a 3rd party channel? When you ship orders for a channel, can you insert pack ins or promotions that drive repeat customers back to your direct channel? Do not underestimate how important it is for your brand to create direct relationships with customers and drive lifetime value of customers.
Another way to think about spillover is “brand awareness,” a channel that doesn’t make too many direct sales, but does create a tremendous amount for brand awareness about your products, could in fact be an exceptionally strong channel to scale up your brand.
Don’t Overlook Channel Costs
The last important factor is evaluating the costs of using a channel. Remember, these channels are going to be building brand awareness and selling your products, but in return, the will definitely want a slice of the pie. Just how big of a slice will depend on the channel itself and can be influenced by a number of factors.
I recommend evaluating the costs on a unit basis of any given channel first and foremost. You will want to see, given the channel’s costs and your product’s prices, what selling through the channel will look like for your gross margins. Selling through a channel will almost never have as good margins as selling directly to customers yourself (cut out the middleman), but remember it can be a reasonable strategy to give up margin to gain revenue, as long as at a minimum the channel is break even or slightly profitable. If you can’t earn a profit in a channel, selling your product, you must be very careful using that channel, while it can be good to acquire new customer’s you will need to be exceptionally confident that you can make up those customer acquisition costs with customer lifetime value.
Once you have confirmed that a channel can be a profitable way to move your product on a unit basis, you also need to quickly evaluate “other” operating costs required to run that channel to ensure the channel can provide enough scale to also cover the operating costs of using that channel. Hopefully, operating costs are low, or can be shared with other channels you are using. For example, if the channel requires great product photography, but you want to have great photos of your products for your own direct sales channel, I wouldn’t assign those operating costs to the new channel alone, they can be shared across both your direct channel and your 3rd party channels.
Stack Channels To Get More Direct Sales And Channels Sales
Don’t forget that once you find a single great channel, your job isn’t over, it’s just begun. You can add as many sales channels to your business as possible to continue to drive sales, and since just about every sales channel has some level of spillover, adding sales channels will also typically improve your direct sales channel.
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