<b>Modeling margin erosion when direct and channel sales overlap</b>

<b>Modeling margin erosion when direct and channel sales overlap</b>

When a vendor sells both directly and through partners, overlap is inevitable, and the margin consequence follows a predictable curve worth modeling before it surprises you.

<b>The erosion mechanism.</b> When direct and partner reps pursue the same account, the customer learns there are two paths and uses the knowledge to negotiate. Per channel-strategy research, accounts aware of dual sourcing extract larger discounts — the vendor's own sales paths compete against each other on price.

<b>The quantifiable part.</b> Margin erosion scales with overlap rate (share of accounts pursued by both paths) and with the discount delta the customer can extract. Even modest overlap, compounded across a portfolio, can erase the cost advantage that justified the partner channel.

<b>Rules of engagement as the control.</b> Account segmentation (named accounts direct, the rest channel), registration-based assignment, and territory rules reduce overlap. The cost is rigidity — clean rules misassign edge cases and frustrate both sides.

<b>A subtle trade-off.</b> Total overlap elimination is itself suboptimal: some redundancy increases coverage and win rates on contested deals. The goal is an overlap rate that maximizes coverage minus erosion, not zero overlap.

<b>Correlation caveat:</b> high-overlap accounts may simply be high-value accounts that attract attention from everyone, so observed erosion partly reflects account characteristics, not the overlap itself.

<b>Open questions:</b> what overlap rate optimizes the coverage-versus-erosion trade-off for a given deal-size distribution? It's solvable with internal CRM data, yet rarely computed before rules are set by politics.