Distribution Business – How To Start A Wholesale Distribution Business

I have always had this dream of owning a distribution business, more like a high-end supply chain logistics company.

So, I was at home one beautiful Friday morning when I got a call from a friend who wanted me to meet a friend of his. This friend happened to be the regional sales manager for a very reputable UK-based FMCG Company in Nigeria.

It so happened that a distribution opportunity existed in one of the eastern states in Nigeria. The company needed someone to take up the distribution partnership slot of distributing their goods in the state. I did meet up with him, and we had an interesting interactive business discussion.

Through our continuous meetings, I discovered that yes, I may know the primary ethics of running a business but that the distribution business is quite unique.

Interacting with the brand leaders and through my personal research on the process, I garnered very useful information. The information will be beneficial for anyone who has a passion for the distribution business.

Distribution Defined

Distribution is one of the four core parts of the marketing mix. Without distribution, your production or service chain will not be complete. Being a distributor of a product means that you are the middle man between the manufacturer and the end-users.

See Also: 100 Profitable business ideas to start now for aspiring entrepreneurs and investors.

Distribution is a form of business to business dealing. As a distributor, you are very important to both the manufacturer and consumer because you are in the middle of the line. It is a business with numerous success stories that can be started with little capital depending on the product you intend to distribute.

You definitely can grow at your own pace. Just like for every other business that we have discussed on this site, I will emphasize that before you get involved with any business, ensure you are passionate about it. That way, it won’t feel like a job.

So below I have all the information you need to kick start and succeed in your distribution business.

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Ways To Penetrate Into Distribution Business

In starting a distribution business, there are three basic ways to penetrate the market. These three ways have their pros and cons so it is important that you evaluate thoroughly before making a decision.

Buy An Existing Distribution Business

The advantage of this kind of entry is that you will inherit an existing knowledge bank of the business and equally the client base of the business. More importantly, the fact that the business is already in motion is an added advantage.

However, this type of entry can be very costly in addition to not knowing the reputation (goodwill) already created by the existing owners, and if it is one you would want to associate yourself with.

See Also: Factors to consider before choosing a business structure for your business.

Start From Scratch

Starting from scratch can also be costly and risky.  However, it allows you the opportunity to learn, make it or break it yourself.

The major challenge here is that you will be building your reputation yourself. Therefore you will need heavy investment in marketing and sales to make any significant impact on the market.

Buy Into An Existing Distribution Business

This option is riskier than the first two because you have to deal with the culture and politics of the distribution company. If you have to take this option, you need to be very careful and explore the business before investing your time and money.

It is important to note here that whichever method of entry you choose will not necessarily be the determinant factor in the success of your distribution business.

The crucial questions are: Is the opportunity presenting itself to you the right one? How much support and training is the originating company willing to give?

Remember, you have the right to negotiate with the company and whatever you get at the end of the day depends on your bargaining power.

How To Start A Successful Distribution Business

1) Decide Your Product

You could either choose to distribute a product that you are passionate about or research to find a product that is difficult to find in the market and create a niche for yourself.

The endpoint is that you need to choose a specific product or a variety of products. Whatever your decision is, being a distributor means that you need to partner with a manufacturer and source for customers.

2) Research Market

Validate your chosen product by leaving the building and going into the market to find out everything and anything you can about the product. For the market research to be effective, you have to be exhaustive.

You need to find out if there are already distributors for the product you want to offer and their geographical jurisdictions; check for competing products and pricing; determine your customers, where are they located, and who and what determines your inventory; understand the product life-cycle; learn all you can about the industry, etc.

After your research, it is left for you to make a decision whether to change your product offering or find ways to beat your competition. My advice is to know your market, competitors and customers. Get a grasp on your customers before you invest in inventory.

Remember that you can agree with the manufacturer on payment terms; get the products and pay after you exhaust your inventory.

See Also: Tips for making the best negotiation for entrepreneurs.

3) Get A Business Plan For Your Distribution Business

In order to have a full vision of your distribution business, you need a business plan. This will be of great help in understanding the strategies you need to employ to make your business successful.

A catchy and detailed business plan is a necessity if you plan on sourcing for funds through financial institutions or other means.

4) Be Legit

Make your business official by getting a unique business name, registering with the Corporate Affairs Commission and getting the necessary license(s). As soon as you start, take care of the tax. Be aware of particular laws applicable in the state and country you operate.

See Also: How to get Tax Identification Number (TIN) and open a corporate account for your business.

5) Get A Location

The location of your warehouse facility is not really important to your customers since you will be delivering the goods directly to them; as long as they get their goods in good shape and on time.

However, location is very important to you because it has a direct impact on your cost; it is cost-effective if you locate it very proximal to your customers.  The warehouse space you need will depend on the type and size of the product you are distributing.

Some distributors start off from their garages and grow from there.  Staying in the garage/basement permanently will depend on how big you are willing to make your business to grow.

Also, the decision to either operate from home or hire a warehouse will also depend on your capital base. In all, the crucial thing is to have a goal (short term and long term).

6) Determine Cost And Plan Funding

The largest part of the cost in the distribution business is the inventory cost, followed by other large-cost items like payroll, van purchase and maintenance, facilities and equipment procurement, etc.

The initial take off capital will depend on the product you will be distributing. The start-up capital for a business distributing office stationery is not same as another that distributes building materials.

The available funds’ option to offset these costs include personal savings, borrowing from family and friends, friendly loans and traditional loans, etc. Determine which works for you and work accordingly.

See Also: Sources of funding for the entrepreneur to grow his business.

7) Get The Marketing/Advertising Covered

Clients will not patronize you if they do not know you exist, so have a viable and workable marketing plan. Leverage online and social media resources.

You can also do traditional and offline marketing such as printing of souvenirs, brochures and placing ads in newspapers. Here you can also make a catalog of all your products and make them available to clients and prospective customers online and offline.

In essence, succeeding is all about packaging your business and having a plan for the future of your business.

Secrets To Success In The Distribution Business

Every business has its secrets. Before I give you the secrets, it is worthy to note that organisation of your time, employees, finances and inventory is one of the keys to successfully running a distribution business.

a)  Managing Your Receivables

That you are profitable in this business depends on your ability to manage your receivables effectively and efficiently. You may lose your credit worthiness with the manufacturer if you don’t manage your credit with your customers well.

You should be wary of customers with the habit of owing huge amounts of receivables with no realistic payment time. Now, you need to leverage your position as a distributor. Before you set the time for account reconciliation with your manufacturer, you should ensure that by then all your receivables must have been received. It is about synchronizing the two parties (manufacturer and retailers) and your business.

Be articulate and detailed with your customers by setting credit deadlines and limits upfront and do not overextend your credit. Also, do not allow one customer to owe too much receivable that can leave you overexposed.

One important secret to succeeding here is to make use of turnover. Do not add too much mark-up to the price of the product, because the more turnover you have the greater your rebate.

b) Have A Workable Time Frame For Your Distribution Business

Unforeseen circumstances can make a manufacturer disappoint on the delivery time at the last minute. Therefore, having a time-lapse between the delivery date of the manufacturer and your delivery time to customers will work the magic.

You should get customers’ orders registered upfront and the delivery time and date for customers should be realistic. Having a superb customer service will help keep the customers happy while they wait and work with your time frames. Ensure your staff is trained to handle customers well, even the difficult ones.

c) Be Flexible And Dynamic

Pay attention to changes in customer preferences and buying habits. Keep a close watch on economic and political changes. Find out what end users are willing to spend their money on and other trends affecting your industry including competition.

Take note of the path and actions competitors are taking and put actions in place to win.

d) Offer References

Compile a list of satisfied clients that are willing to serve as reference to your potential clients. This will give future customers the ability to verify your work and the decision to do business with you can be done easily and favourably too.

e) Certified Employees

Employ individuals who are certified in your business field and also ensure they are skilled at the highest level. This will go a long way in improving and increasing clients’ confidence in your business.

The important skills that you as the business owner should have are financial and management skills.

f) Active Retail Network

A distributor should have an outside sales force that will be on the scout for retailers and new businesses to sell to and distribute for.

While some retailers may find you because of your reputation or from a manufacturer’s recommendation, there are some who do not know that your business exists.

If your marketing team and sales force are not in place, be rest assured that the competition will take over the market from you.

See Also: Tips on creating and delivering the perfect business pitch

The Facilities Needed For Your Distribution Business Start-Up

Inventory, warehouse, internal necessities (pallet racking, forklifts, etc), van(s) for delivery, telephone, personal computer, distribution software, a printer, desk, and space are needed.

If you operate from home, you will not need the warehouse bill. The lovely thing about the distribution business is that you can start very small and grow the business at your pace.

The Competencies You Will Need For Your Distribution Business

Experts agree that the most important skills needed in the distribution business are sales background, people skills (the ability to be an outside salesperson willing to go on a spree in search of new customers and products).

Here are some of the departments and skill set with their responsibilities as you grow:

i) Customer Relations

In charge of coordinating inbound and outbound calls, emails, texts, social media and letters to and from customers regarding issues and questions. Will have to have sales experience.

ii) Financial Department

Verifying customer credit, working with third-party organisations (e.g. leasing company). Should have financial background or credit management experience

iii) Purchase manager

In charge of ordering supplies, coordinating the warehouse and other logistics that has to deal with inventory. Since you are starting off, you can fill in this position yourself.

iv) Marketing Professional

Presenting the company to the customer base, vendors, media and trade groups in a positive fashion.

v) Warehouse Associates

Physically take inventory off the shelf, pack them in boxes, receive incoming inventory, and operate forklifts in the warehouse. Handle other tasks as needed

vi) Warehouse manager

Oversees the activities in the warehouse and also see to the maintenance of the warehouse

vii) Drivers

These can also be the sales representatives to cut down costs. They will see to the physical delivery of products from the distributor to the customers.

Things To Keep In Mind While Running Your Distribution Business

Time for profit

The time for return on investment is approximately 2-5 years. The cost structure of the business will also impact the time of return and rate of return of your business.

If you are using your garage as a warehouse and your car for delivery it will help cut down overhead cost. So, it will be feasible for you to have a return on your investment, if possible, within the first year of operation. This is in contrast to someone who rents a warehouse, hires vans and has paid employees.

Shipping cost

The primary reason why manufacturers need distributors is to reduce shipping cost of products. A distributor can also maximise profit by reducing shipping cost to retailers. This he can do by understanding his jurisdiction (operational geography) and having a map of the areas he covers.

You can either decide to have a strategic point of delivery or, if the area is large, choose to have warehouses in different locations close to your customers. This will reduce cost of operation and impact on revenue.

Some manufacturing companies prefer to deal with regional distributors as opposed to national distributors. So, in choosing to either be a national or regional distributor, analyse your cost and available fund to know if building/renting more warehouse facilities all over the locations makes sense or if focusing on a particular region is a better business model.

Live The lifestyle With Your Distribution Business

This business allows you to live the lifestyle because you are dealing in a business-to-business (B to B) situation.  You don’t have to face the hazard of dealing with the public directly. It also means you work shorter hours for 5 days a week.

Contrast that with retailers who may have to work longer hours for 7 days a week. That means you have time for other priorities in your life. With surplus time on your hands, you can explore other business opportunities or spend more time with your family. 

In summary, as I mentioned, the distribution industry is a very prospective one, with endless opportunities and success stories. The first years are going to be learning years of the ins and outs of running your distribution business.

Putting your business on the world map and creating the needed visibility for your brand will make you the preferred choice by customers. This is what Entrepreneurs.ng will help you achieve. Contact us today to get started.

Photo Credit: Ecodev