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What Is a Sales Alliance, And How Can It Help You?

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Marketing and advertising is one of the biggest expenses facing a small business. How do you bring in new customers, build goodwill with them and develop their consumer loyalty? Many marketing strategies are vast in scope, reaching huge numbers of people who have no interest in the business or its products; only a small percentage of the marketing audience is actually brought in. It would be far more efficient for you to use your resources to market yourself only to people who were actually interested in your offerings and might be ready to buy, and creating a sales alliance is a great way to do that.

What Is a Sales Alliance?

A sales alliance is an agreement where a company shares its customers with another business by drawing attention to that business’s products, in exchange for a percentage of the sales revenue. A business that has already taken the time to develop relationships with its customers has a huge marketing advantage over a new company that comes in trying to get those same customers. By using the goodwill that established customers have toward the first business, a second business can benefit from that loyalty by a strategic alliance, or a hosting device.

How Does a Sales Alliance Work?

Sales alliances work as host-beneficiary relationships. You must start by identifying what your customers and prospective customers would be interested in, as well as what related businesses they might already be dealing with. If your business sells carpets, a natural partner is a carpet cleaning company. Once you determine these, you can think about creating these alliance relationships.

If you’re looking to gain access to new customers, you want to be the beneficiary in the alliance. In this case, you would find businesses that already have access to the customers you’re looking for, a related, but complementary company. You work out an arrangement where the other company, the host, publicly endorses your business or product, while you offer special promotions (such as discounts, longer guarantees, or additional options) to the customers of the host company to get them to come to your business, too.

Their loyalty is to the host company, not yours, so you need to give as many reasons as possible to bring them to you. You pay the marketing costs, and you and the host company split the revenues. Even though you’re not getting full revenues from the sales, it’s beneficial because you’re getting access to customers you might never have gotten otherwise, or else only at high marketing costs.

If, on the other hand, other companies want to get access to your customers, there are incentives for you to join the alliance, as well. The tables are completely reversed, and now you are endorsing the other company, which is offering special promotions to your customers, and the two companies split the revenues. The special promotions offered by the beneficiary company benefit you, improving customer loyalty because your customers see that they’re getting a good deal through their connection with your business. Splitting the revenues means that you as the host get access to revenues from sales that aren’t even at your business. You don’t have to do anything except give an endorsement of the other company. In the best sales alliances, both sides benefit, trading access to customers for a share of profits.

What Details Need to be Worked Out?

Of course, there are many specific details to this kind of sales alliance. As we already discussed the beneficiary needs to offer the host’s customers some kind of special promotions that earn their trust and overcome their natural resistance to sales pitches. But there are other details that you’ll need to negotiate, too.

Specifically, the way revenue is handled is always handled in negotiations, as there is no set rule for this situation. Most of the time, the beneficiary pays the marketing costs, which are then repaid with the first profits from the partnership. Then both sides split the rest of the revenue. But other times both companies might split the marketing expenses as well as the revenue.

Click here to read more about handling negotiations

Still other times, you might want to adjust the split so that it’s not 50-50. If there are a lot of repeat sales expected, the beneficiary might give up a higher share of the initial revenue, or even all of it, in exchange for getting the revenue from those residual sales. In these situations with a high volume of repeat sales, the host company might prefer the exact opposite arrangement, where the host would pay a higher cost for marketing and wouldn’t take as much or any revenue on the initial sales, holding out for a percentage on the residuals. These are negotiations you’ll have to make for your specific situation, with no hard and fast rules.

Published: December 19, 2012
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Matt Tarkenton

Matt Tarkenton is Executive Vice President at Tarkenton Companies. He was part of a group that started Renova Partners, a boutique investment bank, and was recognized as a “40 Under 40: Up and Comer” by the Atlanta Business Chronicle in 2009. Matt performs business planning and marketing training for hundreds of professionals across the country, and co-hosts a weekly coaching program on entrepreneurial education. Matt graduated from Princeton University, where he was a member of the 1989 Ivy League Championship Football Team, and received an MBA from Harvard Business School.

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