Thanks to companies like Amazon and UPS, the distribution business is booming and better than ever.
But is there still room for starting your own distribution company?
And are private distribution businesses profitable?
I’m Ippei, an I’ve been killing it at passive income, entrepreneurship, and all things local lead generation since 2014: https://ippei.com/best
And In this article, I’m going to break down everything you should really know about starting a distribution business in 2021…
Including the realistic startup costs involved, as well as the average profit margins you’re looking at for this business model.
Let’s get right into starting a distribution business:
How to Start a Distribution Business in 2021
Planning to Start a Distribution Business in 2021? Here's What You Should Know:
Starting a distribution company can be a profitable way to capitalize on a consumerism oriented generation. But to get started you will first need to write a business plan, select your distribution niche, find sufficient storage for your inventory, and build strong relationships with suppliers.
Start Up Costs
While this list is not a comprehensive compilation of every you need to start a distribution business, it provides a snapshot of what you need to add into your business plan.
7 Step Quick Start Checklist:
1. Write Business Plan
Starting a distribution business can be extremely profitable…
But before you can jump right in and start selling your products, you will need to create a business plan.
Your business plan will be your roadmap to success, and it is important that you take your time when creating it.
Don’t just slap one together out of obligation, and don’t assume that the only purpose of a formal business plan is to acquire outside funding for small business loans!
Ultimately, your business plan is there to help you stay focused on your long term business goals.
A basic business plan should include these key sections:
Basic Things to Include in a Business Plan:
So when you are drafting your business plan, remember that a plan won’t be of much use to you if it doesn’t include simple, practical and actionable steps.
Although the five to ten year financial predictions are an important aspect to a good business plan…
What is even more important will be the step by step outline and market analysis that will help you get there.
Your business plan doesn’t even have to be fancy or long!
What matters is making it clear, direct, and actionable.
2. Profitable Niches vs Broad Market
Niching down can be a great way to capitalize on the business that has been left behind by larger national or international distributors.
In addition to this, a niche can also help you to avoid saturated competition that may be found either locally or even more broadly in a popular commerce market.
The cons of niching down in your distribution strategy is that you will face the risk of choosing a niche that fades into an outdated trend.
What might have made you thousands last year or even last month can fade into obscurity in today’s instant gratification and consumption generation.
Does anyone even remember the silly bandz trend?
Or the fidget spinner craze?
In a world where the next generation is all about the newest trends…
Choose your distribution niche wisely, and try to avoid building your business around a niche that could disappear as quickly as it made an entrance.
Capitalizing on a trend by selling it in addition to your normal line of products can be one route to take if you want to get in on the action.
Just don’t put all your eggs in one basket, ya know?
Another thing to note is that there is a distinction between choosing a demographic niche and choosing a geographic niche.
You need to decide if you are going to capitalize on the needs of a specific group or type of people, or on the needs of people within a certain location.
Sometimes, a combination of both is necessary to find the perfect niche for your distribution business startup.
As a wise man once said…
“The riches are in the obscure niches, --” and I’ll let you finish the rest of that sentence.
If you go the route of selling your distribution items to a broad market of people, you will obviously have more opportunities to add new items as the need arises…
However, be wary of spreading yourself too thin when starting out.
You will need connections with different suppliers for every item that you offer, and building these relationships can take time.
3. Physical Space
The physical warehouse space necessary to effectively run a B2B distribution warehouse will vary greatly depending on your chosen niche.
Not only will the turnover and inventory demands of your niche customer affect the amount of stock space you will have to have…
But the physical size of your products will have a huge effect on the warehouse size as well!
Someone who is selling small bluetooth headphones or workout wrist watches can get away with a much smaller warehouse…
Compared to someone who distributes larger items like ceramic tile or large pieces of construction equipment.
You might feel like you’ve landed on the perfect niche…
But if you were hoping to minimize startup costs only to discover that you will need a massive warehouse to keep up with order fulfillment…
You might want to rethink that niche in favor of a business model that distributes smaller items.
In fact, many people who have found success in the distribution industry recommend not renting a warehouse space at all when you are starting out.
Too many businesses invest in a massive warehouse space in the early stages of their business with the plan to “scale”...
But the unfortunate reality is that this is really just a great plan to go broke.
The best way to go about starting a distribution business is to start with what you already have.
Whether this looks like filling up your garage with all of your inventory to begin with…
Or even converting a spare bedroom into a combination of an office space and a mini warehouse…
Do what you gotta do to become sustainable before looking to lease a larger space.
You need to look at a warehouse space as a liability rather than an investment.
Especially before you have a steady cash flow coming in.
Eventually, a large warehouse might be an incredible investment, but it needs to be something that you work towards after you create a sustainable business…
Rather than before.
4. Suppliers and Customers
Here’s the deal:
Without suppliers and customers, your distribution business won’t be much of a business, will it?
Which is why we actually specialize in teaching small business owners how to sustainably generate new leads and business with minimal effort.
If you find yourself struggling to get customers for your new distribution business…
If you’re interested in learning how to passively generate business for your distribution company, then click here to learn more about our lead generation coaching program: ippei.com/local-lead-generation
But before you can even begin to get customers, you must first find your suppliers!
If the whole distribution business concept is starting to get a little fuzzy for you…
Allow me to clarify.
A distribution business acts as the middle man between suppliers and retail business owners.
Many times, suppliers are focused on manufacturing their products, rather than actually marketing and selling them directly to retailers who will then sell those products to the general public.
Which is where a distribution company comes in.
They take on the responsibility of keeping manufactured goods moving and getting them into the right hands.
Most suppliers and manufacturers are more than happy to have someone else putting in the hard work to sell their products!
This way they can stay focused on efficient production, rather than sales and marketing.
Building relationships with suppliers is one of the most important responsibilities you will face as a distribution company.
The stronger your relationships with suppliers…
The more likely it is that they will be willing overnight unexpected shipments to you when you have a spontaneous order to fulfill that you weren’t planning for.
The structure of a distribution company means that your customers won’t be traditional customers.
You won’t be selling to consumers.
You will be selling to other businesses!
This is considered a business to business or B2B business structure.
Because your customers are other businesses, they will still need to make a profit off of the items that you sell them.
While it might be tempted to stand out from your competitors on price alone, this can be risky.
If you are so focused on selling your products at a competitive price, you may actually end up losing money for the sake of making a sale or getting a contract.
You have to find other ways to stand out from the distribution crowd.
If you can’t afford to beat out your industry competition purely based on pricing, you can strive to beat them in customer service, consistency, and speed of order fulfillment. These factors will often be more valuable in the eyes of your customers than simply offering a cheap price!
5. Inventory Needs
Ultimately, your inventory needs will be largely based on your customers’ needs.
If your niche customer needs supplies delivered immediately, you will need to keep a larger inventory base to keep up with the demands of your customers.
But if your niche customer has less demanding product delivery needs…
Then you may be able to get away with keeping your inventory and stock a little smaller, which will help keep your overhead costs down.
However, if you are in the second scenario, you will need to focus even more on developing strong relationships with suppliers….
So that you will be able to source the inventory and turn it around for shipping quickly when you do have an unexpected order.
Turning inventory is a crucial aspect of running a successful distribution company…
So mastering this skill for your unique business will be vital to the longevity and sustainability of your company.
There are pros and cons to both inventory strategies.
Keeping a lean inventory saves money…
But you could risk losing out on a returning customer if you are consistently out of what they need when they come calling.
On the flip side of things, over stocking your shelves with products that you anticipated a high demand for could prove deadly if your predictions are faulty.
Having a product that simply won’t move is not only taking up space, but costing you money.
The last thing you need as a new business owner is for your investments to sit on shelves.
And that is what inventory is: an investment.
Make your investments wisely, and do your best to anticipate the needs of your consistent clients, while also leaving room for the unexpected buyers…
And also for the once a year purchasers that inevitably come up in the distribution industry.
Your entire goal should be to serve your customers with excellence and pay attention to their priorities and needs…
And not just on how to save or make extra money.
If you are serving your target customers well, then your business will continue to thrive and grow.
As I briefly mentioned above, your customers will be other businesses.
Which means that they will be putting a markup on your price to turn around and sell their products directly to consumers.
You will also be selling products at a markup, because you will be buying directly from manufacturers and suppliers.
Which means that by the time a product goes from supplier, to distributor, to retailer, to final customer…
That product will have been marked up three separate times!
Because everyone in the chain of commerce has to turn a profit.
If it costs the manufacturer $5 to produce the product and they have a 100 percent markup, then you (the distributor) buy it for $10. Following the same formula, the wholesaler would double the cost and sell it for $20.
Which ultimately means that there is a 400 percent markup from manufactured price to the wholesaler's customer.
Ultimately, you are in charge of the markups that you place on your products.
The important thing is that you find the balance between turning a profit and remaining competitive in your pricing.
Certain niche markets allow for greater markups than others.
If you are selling a luxury product, like Bourbon or wine, then you will be able to add a greater markup than if you are selling a less valuable item like cell phone cases.
When you are considering which niche you want to build your business around, take the potential markup into consideration.
A product that only allows for a minimal markup can still be successful, but you will have a larger profit margin on luxury products.
7. Website and Automation
When you are setting up your distribution company, you will definitely need a website!
Most of your sales will go through your website, as few businesses make phone calls to place orders anymore.
In fact, many distribution companies only offer order placement via their website.
Which means that your website needs to be extremely user friendly and have a functional ecommerce platform.
Your clients will be looking for the following qualities in a distribution website:
What to Include in a Distribution Website:
The ease of browsing and buying products on an e-commerce store will drive your sales.
If you are uncertain about building out your distribution website on your own, then you should consider hiring a professional web designer who is familiar with creating ecommerce websites.
Specifically, look for someone who has helped to design sites for wholesalers before!
However, if you are set on building this website yourself, there are a variety of different template based website builders that you can use to streamline the process.
Some of my favorites are:
Once you have your website up and running, it will be time to turn your attention to streamlining the automation of your distribution business.
Running a distribution company can be extremely demanding on your time, so the more that you can automate, the less you are responsible for handling yourself.
In fact, most automation companies swear by a good inventory management software to help them automate and run their businesses.
Inventory Management software will be able to help streamline your workload and increase your profits.
How does it accomplish this feat?
Because it allows you to adjust and raise your purchase orders through automation.
Instead of attempting to predict when you need to increase your inventory stock…
Certain inventory management software can actually do this for you by updating the order quantities and even placing the orders for you.
This can be especially helpful if an unexpectedly large order is placed during your off-hours. If you have automated systems in place, then a new purchase order to your suppliers can automatically be sent out so that your inventory levels don’t ever drop dangerously low.
Another great automation software to invest in will be an Order and Delivery Software for tracking the status of an order from purchase to final destination.
Knowing exactly where your orders are at will not only help you run your business more smoothly, but it will also increase your customer service and customer satisfaction.
Pros and Cons
of starting a distribution business
Starting a Distribution Business Can Be Profitable, If You Know This First:
Here’s the thing…
Starting a distribution business is only as profitable as the amount of clients you can get.
If you aren’t delivering packages, then you aren’t making money.
It’s as simple as that.
Which means that you are going to face the same exact problem as every other small business owner!
And that is the struggle to consistently supply new leads for your business.
Without a strong lead generation strategy implemented in your business, the road to success will be long, hard, and damn near impossible if we’re being honest.
Luckily, we happen to specialize in teaching small business owners how to generate new leads for their business in a sustainable way.
Thanks to Google’s localization capabilities, and targeted SEO, you can establish an online lead generation machine that will operate virtually on auto pilot…
While you get back to making your delivery rounds and serving your customers with excellence.
Lead generation for local businesses is the business model that I consistently swear by, and the one that took me from barely being able to pay my bills…
To bringing in well over 50K per month in less than five years.
So if you want to learn more about local lead generation and how it can change everything for your business, then click here for more info: https://ippei.com/best