A distribution business moves a product from manufacturers to either retailers or direct clients to make a profit. In addition to financial planning, practical strategies, and legal documentation, you need to have skills such as negotiation and attention to detail to run a sales and distribution company successfully. This article provides a simple guide covering what it takes to start a distribution business.
Categorize your distribution business
The category of distribution business will depend on your goals, target market, and experience in the industry. There are two types of distribution businesses, namely retail and wholesale distributors. Retail companies sell the product directly to clients, while wholesale distributors buy goods in bulk directly from manufacturers to resell to retailers or other businesses.
Select a suitable product
Find a product that will fulfill a need in the market. Talk to retailers and establish a sales connection for future business deals. Conduct market research to determine what challenges the customers face and lay the groundwork for how you intend to solve their problems. Choose a product that costs you less to purchase and one that will generate high profits. Narrow your niche to specific products to reduce competition and strengthen the relationship with manufacturers.
Formulate a business plan
You must write a comprehensive business plan that clearly states the name of your company, the type of distributor you plan to be, your product catalog, your target market, and your inventory management strategies as well as shipping methods. Writing a business plan guides you and specifies how you can offer a unique experience and make you stand out from competitors.
Implement inventory management strategies
Your inventory will determine the number of employees you need to hire, the tracking systems you need to implement, and how large your storage space needs to be. Small businesses can get away with managing their inventory from home due to its small size. Inventory management increases your efficiency and helps you deliver goods to your clients on time. There are two ways you can manage your inventory.
Dropshipping involves buying products and selling them directly to the buyer without holding on to them. This method reduces the costs of having to hire a warehouse to store your goods. In case your products don't sell, you have the option to conduct a clearance sale to get rid of unnecessary goods.
This method requires you to buy goods and then hire a warehouse to store your inventory. You can opt to hold on to your products while you negotiate a better price from the buyer. Holding on to stock also gives you time to decide what you want to do with it if there is a sudden increase in prices.
Estimate startup costs
After you have formulated a business plan, you need to determine how much money you need to start your business. Remember that your most significant expense as a distributor is the inventory, which determines the number of employees, storage space, operating expenses, and equipment needed. You could opt to venture into drop shipping to lower your startup costs since you will not physically contact the product. However, the market is crowded, meaning it will be more difficult for you to generate more profits.
Select your model of supply distribution
You should figure out how you want your products to reach your target market. Here are some examples of supply distribution models.
Cash and carry
In this distribution model, clients pay you cash upfront for goods you supply to them. The clients will then be required to pick their goods from a distribution center based on your previous agreement.
You can opt to be a broker and arrange for a buyer and seller to interact and make a transaction. You will then be paid a commission of the total sales if the deal is successful.
Online sales distribution
This model is convenient because you can create an online platform to complete your transactions more manageably and reduce the number of employees you need to hire.
Import and export
As a distributor, you could buy goods from other countries to sell to retailers in your country for a profit, or you could buy goods in your country to sell to retailers abroad.
Apply for business licenses
You will need to decide whether you want your distribution company to operate as an LCC or a corporation and apply for business licenses. Forming a legal company ensures that your business complies with state regulations and separates your finances from your company's. If your business goes bankrupt or is sued, your finances will not be at risk.
Find the right suppliers
Look at multiple wholesalers online who have the products you want to start selling and communicate with representatives responsible for negotiations. The goal is to find the right supplier where you can purchase bulk goods for your business at lower rates. You will make more money and save more time on supply chain processes with the right partners on board.
Market your business
Now that you have the nitty-gritty of your business all figured out, you should let potential customers know about your business and the products you offer. Put together a competent team to create a marketing plan and figure out how to increase sales. Prepare yourself to do a lot of marketing for your business in the first year and set aside a certain amount for printing brochures and catalogs.
Ensure you have an online presence
Ensure you create a website that is up to date with complete product catalogs and correct prices, primarily if you sell directly to customers. Invest in search engine optimization so that your website is placed higher in search results and potential clients are directed to your website.
A distribution business is a great venture for a full-time or as a side hustle. With the right skill and virtues, you can generate high profits! The key is to start on the right foot as you set up the business. Don’t forget to provide all your customers with a pleasant experience. You will get more referrals and new business through exceptional customer experience.