If you are interested in starting a distribution business, you need to gather resources, secure legal documentation, and plan financially and organizationally. Additionally, you should network with relevant professionals to ensure success.
What is a distribution business?
A distribution business is a type of supply chain company that moves products and materials from a manufacturer to a retailer. It is also known as a sales and distribution company, and involves purchasing goods from a manufacturer to sell to retailers and make a profit. There are two types of distribution businesses: wholesalers and distributors. Wholesalers buy large quantities of goods from a manufacturer and then sell them to retailers in smaller quantities. Distributors buy goods from a manufacturer and then sell them directly to consumers.
Distribution businesses are types of supply chain companies that move products and materials from a manufacturer to a retailer. They are also known as sales and distribution companies and involve purchasing goods from a manufacturer to sell to retailers and make a profit. There are two main types of distribution businesses:
retail distributors, which sell directly to consumers, and wholesale distributors, which resell the products to end-users.
Distribution companies can operate independently or can be contracted by manufacturers to provide services.
How to start a distribution business
- Choose the product you would like to distribute.
- Identify a niche market for your product.
- Decide how you will market and sell the product.
- Choose a system for managing inventory.
- Find an appropriate storage space for the products.
- Obtain the necessary business license.
- Enhance your business skillset.
- Locate manufacturers for the product.
- Establish connections with retailers.
1. Choose your product
To make your choice, begin by researching current market trends and customer needs across a variety of industries. Focus on products that are familiar to you or in an industry that you have some experience in to make the research process easier. Reach out to various retailers to ask questions about what their customers want and to create potential sales connections. After gathering information, you can select a product that serves a need and provides a solution to a problem faced by consumers.
When selecting a product, it is essential to consider your budget. Choose a product that is priced competitively from the manufacturer in order to keep overhead costs low and promote higher profits. Also, research current market trends and customer needs across a variety of industries to determine what problems consumers have that you may find a product solution for. Focus on products that are familiar to you or in an industry that you have some experience in to make the research process easier. Reach out to various retailers to ask questions about what their customers want and to create potential sales connections.
2. Identify your niche
Choosing a niche can help your business stand out and give you a competitive edge. By targeting a small segment of the market, you can reduce the number of competing distribution companies and create stronger relationships with manufacturers. This gives you access to higher quality products and allows you to better control your business. Additionally, creating trust with retailers and consumers can lead to more lucrative negotiations with manufacturers. In short, selecting a niche can be a great way to maximize success in the market.
By selling in a niche market with fewer competitors, you can increase your earning potential since customers and retailers have fewer options to choose from. If you can provide quality products, your business and partnerships can be successful. This gives you an advantage over larger markets, where competition is more intense.
3. Decide how you’ll sell your products
As a business owner, you have the option to choose a model of supply distribution to sell your products to clients. Examples of this include brokerage, where you facilitate transactions between a buyer and a seller and receive a commission for the deal; import and export, which involves purchasing goods abroad to sell in your country or local products to be sold to retailers in other countries; cash and carry, where you require payment for all goods before they are picked up from a distribution center; and online sales distribution, in which retailers and consumers complete transactions online through a website or online store.
The use of both online and cash-and-carry models can help to reduce overhead costs by cutting down on the number of employees needed to provide supplies and simplify the transaction process. By taking advantage of these models, businesses can streamline their operations and save money.
4. Decide how to manage your inventory
Inventory management is an essential component of a successful distribution business. By effectively managing inventory, businesses can ensure they have the right amount of goods on hand to meet customer demands, while minimizing the cost of holding excess inventory. Different approaches to inventory management exist, such as manual tracking or automated systems. Manual tracking involves tracking inventory levels by hand, while automated systems use software to track inventory levels and alert businesses when levels are low. Additionally, businesses should consider the size of their warehouse and the number of employees needed to manage inventory levels. With the right approach, businesses can streamline their operations and ensure an efficient and cost-effective approach to inventory management.
Warehousing is a key component of a successful distribution business. By having stock on hand, businesses can act as a buffer against sudden changes in prices from the manufacturer, allowing them to price their product as desired in the short term. Additionally, warehousing provides businesses with the flexibility to respond to customer demands and quickly distribute products when needed. A well-managed warehouse can also help businesses optimize their operations and reduce the cost of holding excess inventory. With a good warehousing strategy, businesses can ensure they are able to meet customer demands and maximize their profits.
Dropshipping is an advantageous approach to distribution businesses. By shipping products directly to customers, businesses can reduce their overhead costs and eliminate the need to store excess inventory. Dropshipping also provides businesses with more flexibility, allowing them to quickly respond to customer demands and adjust their product offerings as needed. Additionally, businesses can use dropshipping to test out new products and gauge customer interest before making a larger investment. With the right approach, dropshipping can be a valuable tool for businesses to maximize their profits and meet their customer’s needs.
5. Determine adequate storage space
If you choose to warehouse your inventory, ensure you have suitable space. This is often necessary to store products between receipt and shipment to customers.
If you opt for a warehouse, ensure you have adequate space to store your inventory. Options for storage include renting, buying or leasing a warehouse, or using space in your home (check local government regulations first). Small distribution companies may even manage their stock from the owner’s home.
6. Get a license
To legally operate your distribution business, apply for the required business licenses. This involves registering for a business tax ID and obtaining state-required licenses. A legal professional can guide you through the process and inform you of the relevant regulations.
7. Improve your business skills
As a distribution business owner, there are many professional skills that can help you be successful. Negotiation skills such as persuasion, collaboration and strategizing enable you to get the lowest buying price possible and keep prices attractive to your retail partners and consumers. Additionally, management skills in task delegation, team building, conflict resolution, problem-solving and goal setting aid in hiring, training and managing employees and overseeing marketing and finance operations. Furthermore, strong verbal and written communication, empathy, and interpersonal skills are essential for communicating with retailers, manufacturers, consumers and other professional contacts. Finally, having a strong knowledge of budgeting, taxation, financial goal setting and money management software can ensure your business’s success.
To develop the necessary skills for business development, consider pursuing a degree or taking coursework in business administration, finance, entrepreneurship and/or communication. Additionally, reading business development books, blogs and online professional resources can be immensely helpful. Attending seminars and conferences offered by organizations that specialize in preparing new business owners can also be beneficial.
8. Find manufacturers
You can easily find wholesalers online that specialize in the products you wish to sell. Reach out to these potential partners and negotiate prices, transportation of the goods to your warehouse, and sign contracts if needed. To become more competitive, you can secure exclusive rights with a single manufacturer, which will reduce competition and inform potential retailers that they must go through your distribution business. This will ensure that you are the only source of the product, giving your business an advantage in the market.
9. Communicate with retailers
Reach out to local retailers who may benefit from your products and provide them with a catalog of your inventory. Structure your prices in a way that would incentivize businesses to order through your distribution company. Establish strong business relationships with the retailers to encourage them to order from you instead of your competitors. Maintain regular communication with the retailers about your inventory and inquire about their needs to ensure their satisfaction.