Navigating the K-12 Sales Channels
Finding a sustainable business model in the K-12 market is challenging for any startup. Unfortunately, many entrepreneurs too often fall into the trap of what I call “build it and they will come” mentality where they focus on building a cool product at the expense of sales and distribution.
I fell into the same trap. And if I were to start over again, I would begin thinking about distribution strategy and institutional sales from day one.
I often tell people I had hair when I started Big Universe in early 2007. So here is some advice from a bald guy, based on tough lessons learned I learned along the way.
Many Ways to Sell Your Solution to Customers
When it comes to selling your product, every state--and the districts within--have different buying patterns. There are multiple methods to get your products to the customer with pros and cons to each method.
Direct sales are ones where the customer can purchase your solution directly from you (using a purchase order or credit card) versus through a reseller or independent representatives. For small volume sales, customers will likely purchase directly from the website. But for larger sales, sales representatives are generally involved and tend to come in two types:
Inside Representatives: Inside selling occurs over the phone (e.g. telemarketing) and is sometimes accompanied with a web presentation (e.g. GoToMeeting, WebEx, Join.me).
Outside (“Field”) Representatives: Outside selling involves meeting with customers in person by setting up appointments in advance or simply dropping by. Either way, you can get a list of potential customers by using the free nces.ed.gov website or by purchasing lists (e.g. MDR, Agile Data, EdLights).
Both strategies typically require employee representatives who get a base salary, commissions, bonuses, and/or other incentives. This can get expensive quickly since there is a lot of trial-and-error involved in finding the right sales people and having structured sales processes and tools in place (e.g. sales stages, fulfilling orders, CRM, marketing collateral). With outside reps, there is the added cost of reimbursing automobile, travel and other expenses.
However, in the end, direct sales is one of the more preferred approaches by established companies, since you have more control over your marketing messaging, pipeline visibility and better profit margins.
If direct selling isn’t an option for you (either because it's too expensive or you have no interest in building your own sales team) or you need help in specific geographic regions, using resellers can be an effective strategy. In fact, this is how our sales at Big Universe Learning grew over 600% in one single year.
Indirect sales comes in many flavors:
Resellers/Distributors: These are companies with a full organization behind them (e.g. staff, processes) and may have their own contracted or independent sales representatives. These companies take commissions anywhere between 30% to 50% on new sales (or between zero to 40% on renewal sales for subscription/recurring revenue products) and handle the purchase orders, invoicing and collection from customers.
Independent Representatives: These are generally individuals who work independently and take 10% to 30% commissions. The one key difference between independent reps and resellers/distributors is that independent reps sell your product but do not handle the customer invoicing paperwork; instead, they rely on you to do that and pay them the commissions. This is one reason they charge a lower commission.
Online Platforms: Many online platforms have emerged such as Apple’s App Store, Edmodo, Google Apps, and many smaller players. These platforms handle the order fulfillment process and typically take 30% commissions on sales made through their platform.
Catalog Companies: This is somewhat of a dying breed, in my opinion, since it involves print or online catalogs that list hundreds to thousands of products. As you might imagine, your product can easily get lost in the crowd.
One example of company that effectively uses resellers is Lexia Learning Systems, Inc. (recently acquired by Rosetta Stone Inc.). While Lexia has had some inside sales reps, they rely almost entirely on resellers and did approximately $20M+ in revenues last year. I don't think they would be able to get there with platforms such as Edmodo or Google.
As a startup, you will likely use both direct and indirect sales channels. In fact, even more established companies sometimes use a combination--for example, relying on direct sales domestically and using resellers for overseas markets.
While Google Apps and Edmodo-type platforms can get you tens of thousands of dollars in revenues, resellers and/or direct sales will boost you into the millions. I see these platforms as a way to generate small sales that are essentially qualified leads that you can use to up-sell products and improve the visibility of your brand.
At Big Universe Learning, we have relied heavily on resellers to date. This year, we are employing this hybrid sales model. We are building our own direct (inside) sales reps and giving them territories (for instance, US states) where we have had no or weak coverage. We’re also using online platforms. For example, in our case, we sell three different levels of subscriptions to our product: classroom, school and district; however, we only put the classroom version in online platforms (e.g. DonorsChoose.org), since it's a smaller sale and simpler to implement as it's intended to be used by an individual teacher or classroom (versus an entire school or district).
Some Parting Words of Wisdom
We at Big Universe built an understanding of K-12 sales channel the hard way--but it's better late than never. I'll leave with some tips about what worked well for us:
Sales: Quickly figure out how you plan to distribute your product, based on how much money you can afford to spend. In the end, having your own direct sales force is preferable since you can better control your sales and improve your profit margins. It does, however, require a lot of money, trial-and-error and time. If you go this route, I recommend doing initial demos and sales over the phone and showing up for in-person meetings with large districts.
Marketing: Use most of the traditional marketing techniques (e.g. SEO, advertising, social media, conferences, “freemium”) to get the word out, but also think of unique things you can do (e.g. free giveaways of subscriptions or iPads for surveys).
People: If you're not into sales, get the right people and get out of their way.
There is no 100% right or wrong answers for how to distribute your products. Much of it relies on experimentation to see which channels are the most appropriate fit for your particular kind of tool and intended buyer.