How to Start a Distribution Business – Key Steps and Expert Tips

Distribution Business is working by purchasing products from manufacturers for a reduced price and in bulk, then selling them to retailers at an increased rate. You are the manufacturer-to-store middleman for everyday customers. This huge market is ripe for the taking. Still, you must maintain a presence through quality products and utility and build relationships with reputable manufacturers/suppliers to break into this industry. So, If you are thinking of starting a distribution business but do not know where to start? don’t worry, In this article, we are guiding you through everything which you should know from the right product selection to finding suppliers and starting your business.

Market Research for Distribution Business

Market research for a distribution business is as important as anything else. Identify what it is you specialize in niche and the type of goods or markets that will be your main point. First, you have to survey the market and figure out which products are selling best in your target area. You want to pick a product or category that is in demand at local retailers and has the ability for you to make good money selling. Next, product selection is important as it determines your customer base and the ultimate success of that business. For example, if you are going to work in the village area then what kind of products do they require? Or if your customers are mainly city dwellers, you may specialize in electronics, fashion and some other consumer products.

Market Opportunity for Distribution Business

There are millions of retailers, small businesses and institutions that needs goods across the country, spread all over India and this wholesale distribution market is much larger & widespread. The wholesale market is expected to expand with a population of over 1000 million, urbanization and increasing demand for products. The Indian wholesale market is expected to witness a Compound annual growth rate (CAGR) of around 10% during the forecast period. Wholesale distribution is a profitable business model as the demand for consumer goods, electronics, food products and industrial supplies never seems to dwindle.

Legal Requirements for Distribution Business

Next, you must establish your business legally. These things include coming up with your business name and figuring out what type of legal structure you want (LLC vs. sole proprietorship). You will also have to get all the relevant licenses like GST Registration, Trade License, Import-Export Code and permits for operations online. So, always consult a legal expert or chartered accountant for your complete documents before starting up.

Finding the Right Product and Suppliers

The first requirement to become a distributor is you select one product that should be interested in your existing work or business. Similarly, you must have all the knowledge about the product as well if in order to grow this business further. Concentrate more on Products having high demand and good profit margins such as FMCG, Electrical/ Electronics, Industrial Supplies, Clothing & Textiles. Then, you are required to find good suppliers. This is key! Searching for suppliers, you have to go through several markets and speak with agents of various companies. Negotiate Favourable Terms After identifying potential suppliers, it is important to negotiate favourable terms. This means they are willing to speak about pricing, payment terms and delivery schedules. Other than this, one needs to find out the supplier’s history and reputation so as not to face any problems in terms of quality or supply consistency.

Financial Planning and Budgeting

The first step you need to take is estimating all your startup costs such as inventory, warehousing and marketing. So you should really have an investment of ₹25 lakh to ₹1 crore, depending on how aggressive your scale would be and what products do you choose. Of course, cash flow management is key in these times so only make promises if you have the money to pay for your purchase before receiving payment. This will help you when making decisions, seeing the general performance of your business and not straying from it. In addition, a credit policy will be more successful in the long run. At times, there can also be financial constraints that hamper the dealers when buying up products. So establishing policies around credit with your wholesale distribution business is certainly a good idea.

Setting Up Your Warehouse

Now that you have set the storage area should be sorted out. It is necessary to have warehouses or storerooms for storage if you intend an offer wholesale. Because of the type of products you deal in, your warehouse or storage facility size and location will greatly depend too. Some categories have more stringent requirements: furniture — a bulky category compared to electronics or apparel for example — requires 2,000 to 10,000 square feet of space. The warehouse Location should be well-positioned next to the market or distribution centre for smooth transportation of inventory. Ensure there is good connectivity and a reasonable amount of space to load or unload goods as well, making accessibility key. To build the warehouse, you need to take into account things like shelving, inventory management systems and security. With this setup, keep Everything Running Smoothly with Inventory Management.

Sales and Marketing Tips for Distribution Business

There are many processes involved in running a wholesale distribution business that all must be handled seamlessly. First, build high-quality manufacturer and supplier relationships for low-price products. Then fix your price and take into account the COGs, expenses and desired % profit margin. Keep an eye on stock levels and make sure your products are replenished before you run out. Now that you have your products and pricing under control, it’s all about selling. Determine stores as well as purchasers, who are dealing in your goods. Implement a system to efficiently take phone, email or online orders Develop efficient channels for Distribution and ensure that the goods reach to customers in time. End of the day build a good relationship with the customer and retain his business back to you.

Now it is the turn of Marketing, if your company has ambitions to grow you cannot forget to attend important trade shows, expos and conferences while keeping in touch with manufacturers and competitors. Also, you need to have a solid relationship with your customers. Offer top customer service and support to earn the required trust. Newsletters will also keep your customers in the loop with news, new arrivals and offers as well as upcoming business trends. Or at least look into customer rewards and loyalty programs. After all, satisfied customers will come back and recommend you to others.

Profit in the Distribution Business

In the wholesale distribution business, profitability relies on several variables such as inventory assortment and price points, as well as how efficiently one keeps up with their operations. Profit Margin is Product Category and Market Demand Profit margins for wholesalers also vary by product category but can be 10% to 25% on average. So if you are able to generate ₹1 crore in annual turnover, profits will lead to a net profit of 15 lakh to 25 lakhs. As your business scales, margins could become better by striking even more competitive deals with suppliers, streamlining logistics and delighting customers with an increased range of products.

Continuous Improvement

Finally, keep trying to get better. Look at how your business is doing regularly, and if the market moves in a different direction be sure to adjust. Learn and know everything as per current trends in the industry. The wholesale trade market is all about continuous growth; without improvement, you cannot attain seamless success in the long run. Launching a wholesale distribution business can seem daunting, but following the proper steps and preparation leads to success.

You May Also Read :

10 Most Profitable Wholesale Business Ideas and Opportunities

Top 10 Profitable Wholesale Business Ideas You’ve Never Heard Of

How to Start an Egg Wholesale Business – Egg Distribution Business