Wholesale Distribution Business: In this article, we’ll discuss:
- Wholesalers vs. Distributors
- The steps to starting a distribution company
- How to write a wholesale business plan
- Finding and attracting new distributors
The wholesale distribution sector has experienced complicated and profound changes over the last two years. Pandemic-related supply chain challenges, including sales disruptions, labour shortages, and inflation have impacted everyone from established wholesalers to new startups. Despite these challenges, the wholesale distribution industry is almost guaranteed to thrive as global demand for most products continues to increase.
If you’re thinking about starting a company in this space, read on for our best tips and principles about creating a business plan:
Wholesale Distribution as a Business
Before we dive in though, it’s important that entrepreneurs and potential business owners have a clear understanding of what a wholesale distribution business actually does.
Wholesale distributors are the main link between manufacturers and retailers. As such, it’s their job to keep products flowing between these two parties. Wholesale distributors are responsible for a variety of tasks, including:
- Contracting with manufacturers and retailers
- Buying product in bulk at a discounted rate
- Transporting product between manufacturer and retailer
- Provide logistical and storage support for manufacturers
- Reducing inventory and service burdens for manufacturers and users
Now granted, it’s also common to see companies that are just distributors or just wholesalers. In the case of the former, distributors contract with manufacturers to move goods down the supply chain to wholesalers, retailers, and even consumers.
The latter (wholesalers) buy bulk product from the distributors and sell to retailers in smaller quantities. This reduces the risk for retailers, providing rapid access to additional product should supply run low, without requiring them to maintain excess inventory that may expire before it is sold. The primary goal of a wholesaler is to satisfy the needs of the retailers. They do not interact with any customer base as they aren’t responsible for whether those products sell or not. Wholesalers can adjust their products to whatever the needs of the retailer are and only fulfils those demands.
Wholesale distributors take the best of both worlds, contracting with manufacturers and moving product down the supply chain, but also maintaining bulk storage of inventory in localized areas and selling to retailers at a profit.
How to Start a Wholesale Distribution Business
Choose a product, or products.
Identify your market niche.
Determine how you will sell products.
Describe how you will manage inventory.
Determine adequate storage space.
Acquire a business license.
Find manufacturers.
Network with customers.
Read Also – How to Get a Small Business Loan Online in 2022
Writing a Wholesale Business Plan
Business Plan Tips for Wholesale Distributors in 2022
As you work through the 8 steps outlined above, you will want to start writing down your formal business plan.
A business plan is necessary for operating a well-run business, but it’s also required if you need to apply for a business loan. The aim of a business plan is to ensure that your reader (whether an employee, investor, or potential lender) understands how your company works and how it plans to grow.
There are five key elements you can use as a template for a basic business plan:
- Executive Summary
- Business Overview
- Sales & Marketing Plan
- Operations & Management
- Financial Plan
Executive Summary
This is the first, and most important, impression your reader will have of your business. It will define their opinion of your business as they read through the entire plan.
A good executive summary includes several key facts about your business such as the description of your wholesale distribution business and the types of products to be sold. It should also include target markets, a financial outlook (and requirements for succession), as well as past and future achievements and goals. We will expand on these in later sections, so keep this succinct.
Tip: The executive summary is the first section of the business plan, but it is the last one you should write. Think of it as a synopsis of what is to come for the rest of the business plan. It will be easier to write once you have every other section mapped out.
Business Overview
The business overview is an explanation of what your business proposition is and how it relates to the wholesale distribution market. You will need to explain precisely what your company does, the products and services you distribute or sell, the market you operate in, and who your customers are.
Tip: Make sure your reader understands the market environment of the wholesale distribution business. It will be important to include your competitive advantage and how you will become profitable. Including market dynamics and vendor relationships will provide a better picture for the reader.
A thorough business overview includes:
- A mission statement
- The philosophy, vision, and goals of the company
- The industry and target audience
- The structure of your business, including who the customers, suppliers, partners, and competitors
- Products and/or services
- Unique selling points
Sales & Marketing Strategy
This section answers the question, “How does your wholesale distribution business position itself and compete with existing players?”
The following is a comprehensive outline to include:
- Target market: size, existing and emerging trends, and projected market share
- Market assessment: summarizes how attractive the target market (whether retailers, distributors, etc) is to your business and why
- Threats and opportunities: a SWOT analysis
- Product/service features: highlight unique selling points, complementary offerings, and after-sale services
- Target consumers: an ideal customer profile to describe exactly the retailers/distributors/customers you are going to target
- Pricing: explains how your wholesale pricing strategy fits within the competition
Tip: Avoid writing that you have no competition. Every business has competitors! Some are direct, like other wholesale distributors, but others are indirect, like people purchasing used products directly from other consumers.
Operations & Management
The operations and management of your wholesale distribution business are the people and processes that help you operate daily. They help you deliver on what you promised in previous sections.
You will need to focus on two things:
- An operational plan to outline the daily operations including the processes and resources for each activity. This includes production/service delivery, quality control, inventory, suppliers, credit policies, legal environment, and location.
- An organizational structure to describe the people in your business and how they relate to each other. Useful information includes the experience of the existing team and the roles that have yet to be filled.
Tip: Investors will review this section to guesstimate salary costs. It is expected that this will be a significant cost centre.
Financial Plan
This section includes projections, budgets, and goals, and should include an explanation of your assumptions when making a forecast or projection. For example, the acquisition of new retailers, expanding into new product niches, etc.
A proper financial plan includes:
- Profit and loss projection: a 12-month, month-by-month forecast of sales, operational costs, taxes, and profits. This section can be up to three years’ worth of projections.
- Financial statement and forecast evidence of cash flow; the amount of cash that leaves or enters the business at any given time.
- Breakeven analysis: shows what level of projected sales allows the business to cover the bare minimum costs.
- Capital requirements: a summary of expenses that details daily maintenance costs and large purchases to show the investors (or lender) what their money is being spent on.
Tip: Include an appendix that contains detailed spreadsheets and calculations to support the financial statements. Read this ultimate guide to managing small business expenses to help solidify the financial section of your business plan.
Finding and Attracting New Customers
Ultimately, the success of your company will depend on attracting and retaining customers who want what you are selling. This is true whether you are focusing on resellers or consumers, and it’s up to you to take the initiative and identify what you can do to make your product easier to sell.
Consider the following strategies to get started:
- Create brand awareness Retailers are looking for products that are easy to understand, have large profit margins, and align with their potential customers. Networking with retailers at trade shows, online via LinkedIn, and setting meetings in person will let them know you exist and are interested in building a relationship. For consumers, focus on marketing that aligns with their felt needs, and try to get the right message in front of the right people at the right time.
- Offer promotions Keep an eye on customer needs as they may wane and wax throughout the year. When demand goes down, try offering a sale or discount. Incentives like this can help you move product, but be sure to keep enough profit margin so that your business doesn’t go into the red.
- Create a strong online presence Whether your focus is B2B, B2C, or both, a strong online presence will allow you to showcase your products and convert customers quickly. Online hosts like Shopify make it easy to build an e-commerce store and automate catalogues for wholesale customers using their CatLog Maker app.
The Bottom Line
Starting a new wholesale distributing business can be overwhelming. However, following the step-by-step guides above are a great starting point. You can set yourself up for success by building a strong business plan and creating a strategy to acquire customers.
And of course, if you need business funding to get up and running, be sure to check out these helpful product offerings. Sam Samarasinghe did and was able to get a loan that funded his fish import business with just a few clicks on his computer.
