How do distribution companies work

But regional distributors are more engaged with their suppliers, and therefore have more time to devote to you and your supplier partners to continue working on growing the brand. Local or Specialty: These distributors are great for specific retail accounts.

They are often more expensive and have stricter guidelines as it relates to distribution. The areas they sell to are smaller, and they sell fewer products. In some cases, there may be opportunities for more profitability because they are so specialized. Distributors are pretty complex organizations and there are some nuances you should know before working with them.

First, we will explore the advantages of working with a product distributor. There are three main reasons why you want to consider working with a product distributor:. Wider Distribution: This allows you to get your product to the widest possible audience. Provides Resources: Provides third-party sales, delivery, and infrastructure capability to your business.

Your sales and delivery force might be a small team, so you can see how a distributor could help. Saves Time: Creates more supplier bandwidth to invest time in product development and manufacturing. You can invest time back into yourself, your brand, your product, and your company because the distributor is handling the sales capability and infrastructure that have probably saddled you since your business has grown.

Of course, before signing on the dotted line, there are a few things you should consider about the cons of working with a product distributor. The con: working with a product distributor will negatively impact margins on product sales. Ultimately, no one is more passionate about your business than you are or your direct sales team. This administrative process includes registering for a business tax identification number and obtain any required licenses your state requires for supply distributors.

A legal professional familiar with business ventures can help you find out exactly what forms to complete, as well as the applicable regulations in your state. There are many professional skills that can help you be more successful as a distribution business owner. Some include:. You can also read a number of business development books, blogs and online professional resources.

Some organizations specialize in preparing new business owners with vital skills through seminars and conferences as well. You can find many types of wholesalers online, and you can start by searching for those that create the products you want to sell. Many have representatives or other contacts that negotiate contracts with potential sellers. Once you reach out to these potential partners, set prices, discuss the transportation of the goods to your warehouse and sign contracts if required.

To be more competitive, you can negotiate exclusivity with a single manufacturer, which can further reduce competition and let interested retailers know that they must order through your distribution business.

Contact local retailers that can use your products and provide them with a catalog. Position your prices to encourage businesses to order through your distribution company. Consider developing strong business relationships with retailers to encourage them to order through you instead of through competitors.

Regularly communicate about your inventory and interview the retailers about their needs to ensure their satisfaction. Find jobs. Company reviews. Find salaries. Upload your resume. Sign in. Finding a Job. What is a distribution business? Retail distributors, which are companies that sell directly to consumers Wholesale distributors, which are companies that resell the products to end-users.

How to start a distribution business. Slotting fees: This is a one-time cost that is generally paid by the distributor to the retailer when its product is first placed on shelves. These fees were first introduced in the s but are now prevalent throughout retailers. Even long-time holdout Walmart finally implemented them in Depending on the scope of your product placement at a retailer and the actual product, a slotting fee can be anywhere from several thousand dollars to hundreds of thousands of dollars.

But like most things in the business world, slotting fees can be negotiated to a degree with the retailer. While you will face somewhat of an uphill battle since yours is not the only product vying for shelf space, it is possible to lower the cost. The first thing to do is have a plan going in and relay that to the retailer.

A strong plan will give you better footing in bargaining for the space you need. About 4 out of every 5 products end up failing, so using marketing in the form of promos or coupons can signal to a retailer that a business is serious about seeing its plan succeed. Another way to demonstrate value to the retailer is having statistics support your vision. Showing that there is a demand for your item and proper placement will increase its viability can make it more attractive to stores.

If you are able to get your product into the store, there is a final tip for possibly lowering the slotting fees. Track the sales of your product in stores and if the numbers are strong, point it out to the retailers, who make money when you make money. Knowing your retailer: This can make the entire process easier when putting your goods out there for consumers.

Get to know the store managers of the locations your product will be if feasible and ask for buyer information. Before you set about finding a wholesale distributor, there are some aspects of your own business you must identify to figure out what would be an exact match for your needs. As the manufacturer, you might have minimum order requirements , so you want to find a distributor who is willing to meet or exceed that condition. There might be a wholesaler who specializes in buying and selling the goods you have to offer.

But regardless of if you can find a niche distributor, search for a variety of wholesalers. This will check off multiple boxes for you by allowing for comparison shopping and competitive quotes.

As far as finding the wholesale distributor, it will take some effort whether it be a Google search or speaking with industry insiders to find out who they use.

Competitors will not be willing to share their trade secrets. The shows are put on specifically so manufacturers, wholesalers and retailers can meet face-to-face and receive more accurate information because of the more intimate setting.

The way a distribution company makes money is simple. The company buys the product at a lower price from the manufacturer and sells it at a higher price to a retailer or customer. Although distributors can make money from serving smaller customers, the best way to make more money is to sell in as great a quantity as possible in each individual order. A rudimentary representation of this is using two cases:. Those examples are just meant to illustrate that volume is not always king.

A smaller customer who might be a small fraction of your business could possibly be worth more to your business than a larger client. Still, the heavy volume customer would also be important as it helps you pay operating costs.

To truly make money, you will need to scrutinize every aspect of the business. Saving money on things as small as your telecommunications internet, phones or office supplies can improve your bottom line. Going over your own business with a sharp eye, even if it is a time-consuming endeavor, can improve your long-term outlook. From time to time, it is important to review each part of your operations to see if there are cost-saving measures to implement or time-saving measures that can also increase overall productivity.

Something that will also help a distributor make money is being able to prove that your product is actually worth buying. For a wholesaler to want to buy and then sell your items, you will have to demonstrate its usefulness and value. There are two types of ways to start a distribution business of your own: you can either start one from scratch or buy an existing distribution business.

The pros to buying an existing one include more limited risk in failure since there should already be a solid business plan in place. While there will be a large upfront cost in buying an existing distribution business, if it is already a profitable business, a new owner should theoretically see profits much sooner than starting its own business from scratch.

Also, the business selling you its distribution center could provide you with its list of clients or add value in the form of help getting you set up or offering advice.

In order to run a successful wholesale distribution business, there are several aspects that need careful attention:. Outside of knowing the basics about distribution, there are some factors to consider when trying to set out on your own. Try to manage costs: This might seem like a no-brainer but there are many factors to consider as a wholesaler in achieving a profitable bottom line.

The manufacturer ships the distributor the parts, and the distributor does the integration work. For example, if a particular retail client has a corporate customer that wants upgraded memory installed into all of its computers, then the retail client would order custom configured computers from the manufacturer.

Product distributors are responsible for getting product to retail outlets, which includes international shipping customs paperwork. Manufacturers can ship product to a domestic location of a distributor, and then the distributor would then take the steps necessary to get the product to overseas markets. This allows a manufacturer to expand its customer base without having to open international shipping or sales locations.

George N. Root III began writing professionally in