business plan and distribution

Distribution Business Plan Template

Written by Dave Lavinsky

Distribution Company Business Plan

Over the past 20+ years, we have helped over 500 entrepreneurs and business owners create business plans to start and grow their distribution businesses.

If you’re unfamiliar with creating a distribution company business plan, you may think creating one will be a time-consuming and frustrating process. For most entrepreneurs it is, but for you, it won’t be since we’re here to help. We have the experience, resources, and knowledge to help you create a great business plan.

In this article, you will learn some background information on why business planning is important. Then, you will learn how to easily write a distribution company business plan step-by-step so you can create your plan today.

Download our Ultimate Business Plan Template here >

What is a Distribution Company Business Plan?

A business plan provides a snapshot of your distribution company as it stands today, and lays out your growth plan for the next five years. It explains your business goals and your strategies for reaching them. It also includes market research to support your plans.

Why You Need a Business Plan for a Distribution Company

If you’re looking to start a distribution business or grow your existing distribution company, you need a business plan. A business plan will help you raise funding, if needed, and plan out the growth of your distribution company to improve your chances of success. Your distribution company business plan is a living document that should be updated annually as your company grows and changes.

Sources of Funding for Distribution Businesses

With regards to funding, the main sources of funding for a distribution business are personal savings, credit cards, bank loans, and angel investors. When it comes to bank loans, banks will want to review your business plan and gain confidence that you will be able to repay your loan and interest. To acquire this confidence, the loan officer will not only want to ensure that your financials are reasonable, but they will also want to see a professional plan. Such a plan will give them the confidence that you can successfully and professionally operate a business. Personal savings and bank loans are the most common funding paths for distribution businesses.

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How to write a business plan for a distribution company.

If you want to start a distribution company or expand your current one, you need a business plan. The guide below details the necessary information for how to easily write each essential component of your distribution company business plan.

Executive Summary

Your executive summary provides an introduction to your business plan, but it is normally the last section you write because it provides a summary of each key section of your plan.

The goal of your executive summary is to quickly engage the reader. Explain to them the kind of distribution business you are running and the status. For example, are you a startup, do you have a distribution company that you would like to grow, or are you operating a chain of distribution businesses?

Next, provide an overview of each of the subsequent sections of your plan.

• Give a brief overview of the distribution industry.
• Discuss the type of distribution business you are operating.
• Detail your direct competitors. Give an overview of your target customers.
• Provide a snapshot of your marketing strategy. Identify the key members of your team.
• Offer an overview of your financial plan.

Company Overview

In your company overview, you will detail the type of distribution business you are operating.

For example, you might specialize in one of the following types of distribution businesses:

• Exclusive Distribution Business: Operates as the sole distributor for its client in a specified region.
• Direct Distribution Business: Sells products directly to retail stores.
• Selective Distribution Business: Typically operates in niche industries with limited retailers.
• Intensive Distribution Business: Provides distribution services to a high number of retailers.

In addition to explaining the type of distribution company you will operate, the company overview needs to provide background on the business.

Include answers to questions such as:

• When and why did you start the business?
• What milestones have you achieved to date? Milestones could include the number of clients served, the number of retailers secured, reaching $X amount in revenue, etc.
• Your legal business structure. Are you incorporated as an S-Corp? An LLC? A sole proprietorship? Explain your legal structure here.

Industry Analysis

In your industry or market analysis, you need to provide an overview of the distribution industry.

While this may seem unnecessary, it serves multiple purposes.

First, researching the distribution industry educates you. It helps you understand the market in which you are operating.

Secondly, market research can improve your marketing strategy, particularly if your analysis identifies market trends.

The third reason is to prove to readers that you are an expert in your industry. By conducting the research and presenting it in your plan, you achieve just that.

The following questions should be answered in the industry analysis section of your distribution company business plan:

• How big is the distribution industry (in dollars)?
• Is the market declining or increasing?
• Who are the key competitors in the market?
• Who are the key suppliers in the market?
• What trends are affecting the industry?
• What is the industry’s growth forecast over the next 5 – 10 years?
• What is the relevant market size? That is, how big is the potential target market for your distribution business? You can extrapolate such a figure by assessing the size of the market in the entire country and then applying that figure to your local population.

Customer Analysis

The customer analysis section of your distribution company business plan must detail the customers you serve and/or expect to serve.

The following are examples of customer segments: individuals, schools, organizations, government, and corporations.

As you can imagine, the customer segment(s) you choose will have a great impact on the type of distribution business you operate. Clearly, schools would respond to different marketing promotions than corporations, for example.

Try to break out your target customers in terms of their demographic and psychographic profiles. With regards to demographics, including a discussion of the ages, genders, locations, and income levels of the potential customers you seek to serve.

Psychographic profiles explain the wants and needs of your target customers. The more you can recognize and define these needs, the better you will do in attracting and retaining your customers.

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Competitive Analysis

Your competitive analysis should identify the indirect and direct competitors your business faces and then focus on the latter.

Direct competitors are other distribution businesses.

• What types of customers do they serve?
• What type of distribution business are they?
• What is their pricing (premium, low, etc.)?
• What are they good at?
• What are their weaknesses?

With regards to the last two questions, think about your answers from the customers’ perspective. And don’t be afraid to ask your competitors’ customers what they like most and least about them.

The final part of your competitive analysis section is to document your areas of competitive advantage. For example:

• Will you offer products or services that your competition doesn’t?
• Will you provide better customer service?
• Will you offer better pricing?

Think about ways you will outperform your competition and document them in this section of your plan.  

Marketing Plan

Traditionally, a marketing plan includes the four P’s: Product, Price, Place, and Promotion. For a distribution company business plan, your marketing strategy should include the following:

Product : In the product section, you should reiterate the type of distribution company that you documented in your company overview. Then, detail the specific products or services you will be offering. For example, will you provide exclusive distribution services, selective distribution services, intensive distribution services, or direct distribution services?

Price : Document the prices you will offer and how they compare to your competitors. Essentially in the product and price sub-sections of your plan, you are presenting the products and/or services you offer and their prices.

Place : Place refers to the site of your distribution company. Document where your company is situated and mention how the site will impact your success. For example, is your distribution business located in a busy retail district, a business district, or a standalone office or warehouse? Discuss how your site might be the ideal location for your customers.

Promotions : The final part of your distribution company marketing plan is where you will document how you will drive potential customers to your location(s). The following are some promotional methods you might consider:

• Advertise in local papers, radio stations and/or magazines
• Reach out to websites
• Distribute flyers
• Engage in email marketing
• Advertise on social media platforms
• Improve the SEO (search engine optimization) on your website for targeted keywords

Operations Plan

While the earlier sections of your business plan explained your goals, your operations plan describes how you will meet them. Your operations plan should have two distinct sections as follows.

Everyday short-term processes include all of the tasks involved in running your distribution business, including answering calls, scheduling shipments, billing clients and collecting payments, etc.

Long-term goals are the milestones you hope to achieve. These could include the dates when you expect to acquire your Xth client, or when you hope to reach $X in revenue. It could also be when you expect to expand your distribution business to a new city.  

Management Team

To demonstrate your distribution company’s’ potential to succeed, a strong management team is essential. Highlight your key players’ backgrounds, emphasizing those skills and experiences that prove their ability to grow a company.

Ideally, you and/or your team members have direct experience in managing distribution businesses. If so, highlight this experience and expertise. But also highlight any experience that you think will help your business succeed.

If your team is lacking, consider assembling an advisory board. An advisory board would include 2 to 8 individuals who would act as mentors to your business. They would help answer questions and provide strategic guidance. If needed, look for advisory board members with experience in managing a distribution company.  

Financial Plan

Your financial plan should include your 5-year financial statement broken out both monthly or quarterly for the first year and then annually. Your financial statements include your income statement, balance sheet, and cash flow statements.

Income Statement

Balance Sheets

Balance sheets show your assets and liabilities. While balance sheets can include much information, try to simplify them to the key items you need to know about. For instance, if you spend $50,000 on building out your distribution business, this will not give you immediate profits. Rather it is an asset that will hopefully help you generate profits for years to come. Likewise, if a lender writes you a check for $50,000, you don’t need to pay it back immediately. Rather, that is a liability you will pay back over time.

Cash Flow Statement

When creating your Income Statement and Balance Sheets be sure to include several of the key costs needed in starting or growing a distribution company:

• Cost of equipment and office supplies
• Cost of rent or mortgage on a facility
• Cost of purchasing and maintaining trucks/trailers
• Payroll or salaries paid to staff
• Business insurance
• Other start-up expenses (if you’re a new business) like legal expenses, permits, computer software, and equipment

Attach your full financial projections in the appendix of your plan along with any supporting documents that make your plan more compelling. For example, you might include your office location lease or a copy of the wholesaler and auto insurance policies you’ve purchased.  

Writing a business plan for your distribution company is a worthwhile endeavor. If you follow the template above, by the time you are done, you will truly be an expert. You will understand the distribution industry, your competition, and your customers. You will develop a marketing strategy and will understand what it takes to launch and grow a successful distribution company.  

Distribution Company Business Plan Template FAQs

What is the easiest way to complete my distribution company business plan.

Growthink's Ultimate Business Plan Template allows you to quickly and easily write your distribution company business plan.

How Do You Start a Distribution Company Business?

Starting a distribution company business is easy with these 14 steps:

• Choose the Name for Your Distribution Company Business
• Create Your Distribution Company Business Plan
• Choose the Legal Structure for Your Distribution Company Business
• Secure Startup Funding for Your Distribution Company Business (If Needed)
• Secure a Location for Your Business
• Register Your Distribution Company Business with the IRS
• Open a Business Bank Account
• Get a Business Credit Card
• Get the Required Business Licenses and Permits
• Get Business Insurance for Your Distribution Company Business
• Buy or Lease the Right Distribution Company Business Equipment
• Develop Your Distribution Company Business Marketing Materials
• Purchase and Setup the Software Needed to Run Your Distribution Company Business
• Open for Business

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Since 1999, Growthink has developed business plans for thousands of companies who have gone on to achieve tremendous success.   Click here to see how Growthink’s business plan services can give you a winning business plan.

Other Helpful Business Plan Articles & Templates

Distribution Company Business Plan Template

Written by Dave Lavinsky

Distribution Company Business Plan

You’ve come to the right place to create your Distribution Company business plan.

We have helped over 1,000 entrepreneurs and business owners create business plans and many have used them to start or grow their Distribution Companies.

Below is a template to help you create each section of your Distribution Company business plan.

Executive Summary

Business overview.

KitchenWare Distributors is a startup distribution company located in Long Beach, California. The company was founded by Nelson Fuller, a former senior executive in a kitchenware company based in Chicago, Illinois. Nelson made over ten million dollars in kitchenware sales during the past two years for his former company, and felt the time was now right to start his own company in California. Because Long Beach is a leading port for ships bringing goods into the U.S. from China and other Asian countries, Nelson believes the greatest kitchen product range and highest dollar value can be amassed via the Long Beach import area.

KitchenWare Distributors specializes in selling kitchen products, including tabletop, tableware, cookware, and cutlery, to independent retailers, retail chains, and e-commerce platforms. Nelson recruited his wife, Jamie Fuller, to join him in the new startup, as her former position was a marketing manager for a small kitchen appliance company. Her new role will be as the Executive Manager of tabletop and cookware products.

Product Offering

The following are the services that KitchenWare Distributors will provide:

• Large-volume sales to kitchen product companies, including brick-and-mortar and ecommerce
• 24/7 customer service representative support
• Competitive pricing
• Diverse product selection
• Free transport from Long Beach to customer location
• Package pricing based on company loyalty programs
• Tiered products based on customer’s target audience

Customer Focus

KitchenWare Distributors will target retail companies, retail chains, and kitchenware stores. KitchenWare Distributors will also target e-commerce platform companies that specialize in kitchen product sales. KitchenWare Distributors will target industrial restaurant and kitchen supply companies. KitchenWare Distributors will target state and federal government cooking and kitchen supply sites.

Success Factors

KitchenWare Distributors will be able to achieve success by offering the following competitive advantages:

• Friendly, knowledgeable, and highly-qualified team at KitchenWare Distributors.
• Customer service representatives with 24/7 service for clients.
• Free transport from Long Beach to customer distribution centers or retail stores.
• Unique logistical software program designed for kitchen product retailers.
• KitchenWare Distributors offers reasonable pricing with free transportation included; both excellent savings.

Financial Highlights

KitchenWare Distributors is seeking $200,000 in debt financing to launch its kitchen product line of goods. The funding will be dedicated toward securing the office space and purchasing office equipment and supplies. Funding will also be dedicated toward three months of overhead costs to include payroll of the staff, rent, and marketing costs for the marketing costs. The breakout of the funding is below:

• Office space build-out: $20,000
• Office equipment, supplies, and materials: $10,000
• Three months of overhead expenses (payroll, rent, utilities): $150,000
• Marketing costs: $10,000
• Working capital: $10,000

The following graph outlines the financial projections for KitchenWare Distributors.

Company Overview

Who is kitchenware distributors.

KitchenWare Distributors is a newly established full-service distribution company based in Long Beach, California. KitchenWare Distributors is committed to becoming the most reliable, cost-effective, and efficient choice for retail chains, retailers and kitchenware supply stores in the U.S. KitchenWare Distributors will provide a comprehensive menu of customer support services for any client to utilize. Their full-service approach includes free transportation from the dock at Long Beach to the city of the client distribution center or retail store.

  KitchenWare Distributors will present and sell through a vast array of kitchen products, including tabletop, kitchenware, cookware, serveware, and cutlery. The team of professionals are highly qualified and experienced in distribution and negotiations. KitchenWare Distributors removes all headaches and issues of the process of buying and transporting inventory for retail stores by taking excellent care of the inventory items and stock and ensuring that all issues are taken care of expeditiously while delivering the best customer service.

KitchenWare Distributors History

KitchenWare Distributors is owned and operated by Nelson and Jamie Fuller, both former executives working within the kitchen products industry in a kitchenware company based in Chicago, Illinois. Nelson made over ten million dollars in kitchenware sales during the past two years for his former company, and felt the time was now right to start his own company in California. Because Long Beach is a leading port for ships bringing goods into the U.S. from China and other Asian countries, Nelson believes the greatest kitchen product range and highest dollar value can be amassed via the Long Beach import area.

Since incorporation, KitchenWare Distributors has achieved the following milestones:

• Registered KitchenWare Distributors, LLC to transact business in the state of California.
• Has a contract in place at one of the office buildings, where the marketing department and administrative group will set up their 10,000 square foot office space.
• Reached out to numerous former clients and contacts to include KitchenWare Distributors as a distribution vendor.
• Began recruiting a staff of fifteen customer service representatives and five office personnel to work at KitchenWare Distributors.

KitchenWare Distributors Services

The following will be the services KitchenWare Distributors will provide:

Industry Analysis

The kitchen products industry is expected to grow during the next five years to over $44 billion. The growth will be driven by the consumer interest in premium kitchen countertop appliances that perform with precision. The growth will also be driven by smart kitchen appliances (remote turn on/turn off capabilities). The growth will be driven by color palette changes in 2027-28. Technological advances will drive the U.S. market growth. The growth will also be driven by eco-friendly, and sustainable tableware products. Costs will likely be reduced as kitchenware categories within lifestyle choices are discounted. Costs will likely be reduced as consumers turn to e-commerce for tableware and cookware choices, which reduces shipping costs overall.

Customer Analysis

Demographic profile of target market.

KitchenWare Distributors will target retail chains, retail stores, kitchenware stores, and government contract customers within California and the U.S. population. .

Customer Segmentation

KitchenWare Distributors will primarily target the following customer profiles:

• Retail chains
• Retail stores, specifically kitchen product stores
• Ecommerce kitchen product companies
• State and government contractors for kitchen products

Competitive Analysis

Direct and indirect competitors.

KitchenWare Distributors will face competition from other companies with similar business profiles. A description of each competitor company is below.

Strategic Distribution Group

The Strategic Distribution Group is located in New Jersey, near Ports America, Inc. The company receives goods via ship transport initiated in Shenzhen, China and directed to retail chains and kitchen stores throughout the U.S. The company was started by a partnership between Hershel Barts and Mark Tokien, formerly kitchen product managers for a major kitchen appliance manufacturer.

The Strategic Distribution Group offers limited discounts on product assortment groups or packages; however, shipping from the port to the retail chain market is provided at no cost. The strength of the company lies in the experience of the partners and the sales history in this industry sector they represent.

Cooking & Eating, Inc.

Cooking & Eating, Inc., headquartered in Scottsdale, Arizona, is a large retail chain that offers a distribution service to clients and guests who want shipment and associated logistics packaged together by Cooking & Eating, Inc. The company was founded in 2014 by Eddy Walker, who found the distribution ties were weak in the Southwest portion of the U.S. and wanted to improve the strength of the industry while also owning a cooking video company that could capitalize on the location and new product introduction.

Currently, Cooking & Eating, Inc. is focused on cooking videos for a YouTube audience of 1.5 million viewers and video reels for TikTok which demonstrate cooking and eating in comedic fashion. The owner of the company, Eddy, enjoys appearing and leading the conversational topics on the show, as well as introducing his company once again to the final outcomes of this year.

Retread Distributors & More

Retread Distributors & More specializes in closeout lots, damaged inventory, returned products and “scratch & dent” appliance units. Their clients include major resellers, such as Overstock.com, and other secondary markets who purchase lots at greatly discounted prices and then hope to sell those lots at a miniscule profit. Retread Distributors & More is owned by Dottie Masters, a woman who has been a leader in the reselling industry for over forty years. The company is one of several owned by Dottie, and as such, it presents a “bargain basement” type of atmosphere, albeit one with excellent pricing and values that can be very profitable for retailers should they choose to sell such inventory items.

Competitive Advantage

KitchenWare Distributors will be able to offer the following advantages over their competition:

• KitchenWare Distributors offers reasonable pricing with free transportation included; both advantageous savings.

Marketing Plan

Brand & value proposition.

KitchenWare Distributors will offer the unique value proposition to its clientele:

• Highly-qualified team of skilled employees who are able to provide comprehensive customer service support.
• Free shipping from Long Beach port to client retail location.
• Unbeatable 24/7 customer service for clients.
• Tiered discounts geared to assist all clients in savings
• Pricing packages that are advantageous for clients

Promotions Strategy

The promotions strategy for KitchenWare Distributors is as follows:

Word of Mouth/Referrals

KitchenWare Distributors has built up an extensive list of contacts over the years by providing exceptional service and expertise to the former clients of Jamie Miller. Former clients have already committed to follow both new co-owners to the KitchenWare Distributors company and refer the new company to their associates.

Professional Associations and Networking

Both Nelson and Jamie Miller are members of national trade associations and both will continue to network and offer services to other members. The company may also choose to sponsor activities during trade shows that will highlight the new company.

Website/SEO Marketing

KitchenWare Distributors will extensively utilize their website. The website will be well organized, informative, and list all the services that KitchenWare Distributors provides. The website will also direct interested buyers to several pages of product inventory, including pricing and available quantities of each. Customers can buy online using the “Buy” page on the website. The website will list the contact number of their customer service representative and introduce them both via the Chat Box on the website. KitchenWare Distributors’s website presence will focus on SEO marketing tactics so that anytime someone types in the Google or Bing search engine “kitchen products company” or “kitchen supplies near me”, KitchenWare Distributors will be listed at the top of the search results.

The pricing of KitchenWare Distributors will be moderate and on par with competitors so customers feel they receive excellent value when purchasing their services.

Operations Plan

The following will be the operations plan for KitchenWare Distributors. Operation Functions:

• Nelson Miller will be the co-owner and president of the company. He will oversee all staff and manage client relations.
• Jamie Miller will be the Executive Manager of the tabletop and cookware divisions.
• Ken Stevens will be the Marketing Manager who will provide all marketing for KitchenWare Distributors.

Milestones:

KitchenWare Distributors will have the following milestones completed in the next six months.

• 5/1/202X – Finalize contract to lease office space
• 5/15/202X – Finalize personnel and staff employment contracts for the KitchenWare Distributors
• 6/1/202X – Finalize contracts for KitchenWare Distributors clients
• 6/15/202X – Begin networking at industry events
• 6/22/202X – Begin moving into KitchenWare Distributors office
• 7/1/202X – KitchenWare Distributors opens its office for business

Management Team

Financial plan, key revenue & costs.

The revenue drivers for KitchenWare Distributors are the fees they will charge to the clients for their products and services.

The cost drivers will be the overhead costs required in order to staff KitchenWare Distributors. The expenses will be the payroll cost, rent, utilities, office supplies, and marketing materials.

Funding Requirements and Use of Funds

KitchenWare Distributors is seeking $200,000 in debt financing to launch its distribution company. The funding will be dedicated toward securing the office space and purchasing office equipment and supplies. Funding will also be dedicated toward three months of overhead costs to include payroll of the staff, rent, and marketing costs for the print ads and association memberships. The breakout of the funding is below:

Key Assumptions

The following outlines the key assumptions required in order to achieve the revenue and cost numbers in the financials and in order to pay off the startup business loan.

• Number of Client Purchases Per Month: 63
• Average Revenue per Month: $616,000
• Office Lease per Year: $100,000

Financial Projections

Income statement, balance sheet, cash flow statement, distribution company business plan faqs, what is a distribution company business plan.

A distribution company business plan is a plan to start and/or grow your distribution company business. Among other things, it outlines your business concept, identifies your target customers, presents your marketing plan and details your financial projections.

You can easily complete your Distribution Company business plan using our Distribution Company Business Plan Template here .

What are the Main Types of Distribution Company Businesses? 

There are a number of different kinds of distribution company businesses , some examples include: Exclusive Distribution Business, Direct Distribution Business, Selective Distribution Business, and Intensive Distribution Business.

How Do You Get Funding for Your Distribution Company Business Plan?

Distribution Company businesses are often funded through small business loans. Personal savings, credit card financing and angel investors are also popular forms of funding.

What are the Steps To Start a Distribution Company Business?

Starting a distribution company business can be an exciting endeavor. Having a clear roadmap of the steps to start a business will help you stay focused on your goals and get started faster.

1. Develop A Distribution Company Business Plan - The first step in starting a business is to create a detailed distribution company business plan that outlines all aspects of the venture. This should include potential market size and target customers, the services or products you will offer, pricing strategies and a detailed financial forecast.

2. Choose Your Legal Structure - It's important to select an appropriate legal entity for your distribution company business. This could be a limited liability company (LLC), corporation, partnership, or sole proprietorship. Each type has its own benefits and drawbacks so it’s important to do research and choose wisely so that your distribution company business is in compliance with local laws.

3. Register Your Distribution Company Business - Once you have chosen a legal structure, the next step is to register your distribution company business with the government or state where you’re operating from. This includes obtaining licenses and permits as required by federal, state, and local laws.

4. Identify Financing Options - It’s likely that you’ll need some capital to start your distribution company business, so take some time to identify what financing options are available such as bank loans, investor funding, grants, or crowdfunding platforms.

5. Choose a Location - Whether you plan on operating out of a physical location or not, you should always have an idea of where you’ll be based should it become necessary in the future as well as what kind of space would be suitable for your operations.

6. Hire Employees - There are several ways to find qualified employees including job boards like LinkedIn or Indeed as well as hiring agencies if needed – depending on what type of employees you need it might also be more effective to reach out directly through networking events.

7. Acquire Necessary Distribution Company Equipment & Supplies - In order to start your distribution company business, you'll need to purchase all of the necessary equipment and supplies to run a successful operation. 

8. Market & Promote Your Business - Once you have all the necessary pieces in place, it’s time to start promoting and marketing your distribution company business. This includes creating a website, utilizing social media platforms like Facebook or Twitter, and having an effective Search Engine Optimization (SEO) strategy. You should also consider traditional marketing techniques such as radio or print advertising.

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How to Start a Distribution Business in 14 Steps (In-Depth Guide)

Updated:   March 1, 2024

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Global distribution is on the rise, with more than $7 trillion earned in 2022 . With a compound annual growth rate (CAGR) of 4.5%, the market could hit 11.93 trillion in 2032. That’s a huge motivator for entrepreneurs looking to get started in the distribution industry.

This article will walk you through the key steps for how to start a distribution business. We’ll cover everything from market research and registering an EIN, to opening a business bank account and compiling competitive analysis to build a better distribution business plan. Whether you want to focus on retail distribution, wholesale distribution, or e-commerce order fulfillment, you’ll find the essential advice to launch and grow a successful venture.

1. Conduct Distribution Market Research

Market research is essential to any wholesale distribution business. It offers insight into your target market, market saturation, supply chain trends, and other important elements of a successful wholesale distribution business.

Some details you might learn through market research include:

• Within wholesale distribution, the largest sectors are electronics, food service, and automotive parts.
• For retail distribution, e-commerce is fueling immense growth.
• Major retailers like Amazon and Walmart are building more warehouses and fulfillment centers.
• Beyond physical products, the distribution of digital goods like software, games, and apps is surging.
• Video games alone require distributing nearly 200 GB per title.
• Fast, reliable networks are essential.

The distribution sector provides immense opportunities across wholesale, retail, digital goods, and e-commerce order fulfillment. With strong inventory management, logistics networks, and customer service, new distribution companies can capture significant market share.

2. Analyze the Competition

Competitive analysis tells you a lot about the local distribution business market. Learning about other distribution businesses helps you better understand pricing, the best local retailers and inventory management products, and more.

Some ways to get to know about wholesale distribution company competitors include:

• Identify direct competitors in your geographic area or niche by searching industry databases.
• Drive by brick-and-mortar stores and assess the location, branding, customer traffic, and facilities.
• Research competitors online too. Check if they offer import/export services as well.
• Google their company and brand names to find their websites.
• Review their product catalog, messaging, offers, and site functionality.
• Check Alexa rankings and traffic estimates.
• Monitor their social media for customer engagement levels.
• Search their name on review platforms.
• Look for negative reviews that present opportunities to differentiate your business.
• Regularly check job sites like Indeed for openings that may indicate growth plans or challenges in retaining talent.
• Track press releases and news mentioning your rivals.

By thoroughly evaluating competitors across all channels, you can craft a distribution business positioned for success. Tailor your offerings, marketing, and operations to your target customers’ needs.

3. Costs to Start a Distribution Business

When starting a distribution company, your initial costs will vary based on your business model and scale. Let’s take a closer look at the expenses you’ll encounter as a wholesale distributor.

Start-up Costs

• Business registration and licensing – $500-$2,000 to form an LLC or corporation and obtain required state and local licenses. The cost rises if you need transport permits.
• Warehouse space – $2-$20 per sq. ft monthly, so a 5,000 sq. ft warehouse would run $10,000-$100,000 per month. Leasing provides more flexibility than buying commercial property.
• Racking and storage – $3,000-$10,000 for a basic pallet rack system for a small to mid-sized operation. Expandable as inventory grows.
• Trucks and vehicles – Used box trucks start around $20,000. Leasing trucks is often better financially than purchasing. Fuel costs must also be budgeted.
• Equipment – Pallet jacks ($250+ each), forklifts ($5,000+), conveyors, scales, and barcode scanners ($1,500+) are common distribution equipment costs.
• Technology – Warehouse Management System (WMS) software costs around $5,000 for an entry-level package. Must also budget for inventory, order, POS, and accounting software based on needs.
• Insurance – General liability insurance averages $1,000-$2,000/year. Commercial auto insurance for vehicles can run $5,000-$20,000 annually depending on fleet size.
• Initial inventory – Plan $10,000-$100,000+ to purchase your first product inventory stock, depending on supplier costs and diversity of SKUs.
• Staff – Warehouse workers average $15/hour. Delivery drivers often start around $18/hour. Will need 1-2 office staff in addition to variable warehouse headcount.
• Professional services – $1,000-$5,000 for legal, accounting, and business consulting services to start.
• Marketing – $2,000-$5,000 to build a basic website, branding, and promotional materials to launch.

Ongoing Costs

• Facility fees – Mortgage or continuing warehouse lease costs.
• Payroll – Salaries and hourly wages for all staff plus taxes and benefits management fees.
• New inventory – Replenishing stock as products sell through. Can range from thousands to millions based on sales.
• Software/technology – Monthly fees for business systems like WMS.
• Gas, oil, maintenance – For company vehicles, averaging 10-20 cents per mile.
• Utilities – Electric, gas, water, etc. for warehouse. May be included in the lease.
• Insurance – Monthly premiums for policies.
• Security – Alarm fees, video monitoring, etc. if not included in the lease.
• Taxes – Income, payroll, property, etc. Complex, so engage accounting professionals.
• Marketing – SEO services, PPC ads, trade shows, and other promotions to attract business. Budget $5,000-$50,000 based on marketing activities.
• Vehicle registration/inspection – For company trucks and fleets.

By planning for these costs and budgeting accordingly, you can launch a distribution startup while managing expenses wisely as you scale. Adjust costs for your specific needs and location.

4. Form a Legal Business Entity

When starting a distribution business, choosing the right legal structure is key. The main options each have pros and cons:

Sole Proprietorship

A sole proprietorship is the simplest structure. You alone own and operate the company directly. This gives total control and avoids corporate taxes. However, you assume unlimited personal liability for debts and legal issues.

Partnership

Partnerships let multiple owners share control and liability risk. A distribution partnership could combine experience in sales, operations, and finance. However, partnerships can get complicated if disputes arise between partners. Dissolving one also requires legal filings.

Corporation

A corporation offers limited liability for shareholders but requires extensive recordkeeping and corporate taxes. The board structure facilitates raising investment capital which distribution startups may need to expand. However, maintaining compliance as a C corporation has recurring costs.

Limited Liability Company (LLC)

For distribution, a limited liability company (LLC) offers the best of all worlds. As the name implies, your assets are protected from business debts and lawsuits. You get pass-through taxation to avoid corporate taxes. LLCs are relatively quick and affordable to establish and operate. You can still attract investors by issuing ownership units.

5. Register Your Business For Taxes

Before launching your distribution company, a key legal step is obtaining an Employer Identification Number (EIN) from the IRS. This unique 9-digit number identifies your business for tax purposes.

It’s easy to apply online at IRS.gov. Just follow these steps:

• Go to the EIN Assistant page: Apply for an EIN Online
• Answer a few questions about your business structure and details.
• When prompted, provide your personal identifying information for security purposes.
• Select a “responsible party” for your business, usually the owner.
• Review your information to ensure accuracy.
• Print the confirmation page with your new EIN for your records.

The entire process usually takes less than 10 minutes to complete and receive your EIN. This number will be used on your tax returns, applications, and other required IRS filings. There is no filing fee.

You’ll also need to contact your state’s revenue or taxation department to register for sales tax collection. This enables charging sales tax on purchases. Filing requirements and fees vary by state. This establishes your business as a lawful tax collector. Failure to register can lead to penalties.

Obtaining your federal EIN and registering for state sales tax collection are vital steps to operating legally as a distribution company. With these numbers, you can open business bank accounts, apply for licenses, hire employees, and collect and remit sales taxes. Taking these actions upfront will save hassle as your customer transactions grow.

6. Setup Your Accounting

Maintaining accurate financial records is critical for distribution companies. With frequent inventory purchases and sales transactions, keeping your books in order can get complex.

Accounting Software

Using small business accounting software like QuickBooks is highly recommended. The system can sync with your business bank accounts and credit cards to automatically import and categorize transactions. Features like invoicing, billing, and reporting make managing finances much easier.

Hire an Accountant

Hiring an accountant provides expert assistance. They can handle essential tasks like:

• Bookkeeping – Recording income and expenses in your accounting system.
• Payroll – Calculating taxes and preparing paychecks for employees.
• Cash flow analysis – Reviewing income and outflows to improve financial planning.
• Tax preparation – Filing quarterly estimated payments and annual tax returns.

Expect to pay $200-$500 monthly for ongoing bookkeeping and $2,000-$5,000 for annual tax preparation. Worth the investment for proper compliance and financial health monitoring.

Open a Business Bank Account

Keeping business and personal finances separate is also key. Open dedicated checking/savings accounts and apply for a business credit card. Business cards require your company’s information and focus on assessing potential based on factors like time in business, industry, and estimated revenue.

7. Obtain Licenses and Permits

Before launching your distribution startup, taking the time to get the right licenses and permits is crucial. Find federal license information through the U.S. Small Business Administration . The SBA also offers a local search tool for state and city requirements.

Some of the key licenses and permits for distribution companies include:

• Transportation permits – If providing delivery services, you likely need permits from the Department of Transportation for both the state you are based in as well as any states you will drive through.
• Business license – Most cities and counties require any business operating in their jurisdiction to be registered and licensed.
• Seller’s permit – If selling products wholesale or retail, you need a state seller’s permit to collect sales tax. You must file regular returns to remit taxes collected.
• Food handling permit – If distributing food or beverages, local health department permitting is required. This verifies safe food handling practices are in place.
• Alcohol distribution permit – For companies distributing alcohol, licensing with the Alcohol and Tobacco Tax and Trade Bureau (TTB) is mandatory.

Failing to secure necessary permits and licenses right away can sink a distribution startup quickly. Work with local business attorneys and government agencies to determine which ones your business model requires before operations begin.

8. Get Business Insurance

Carrying adequate insurance is crucial to protect a distribution business from unexpected disasters and lawsuits. Without proper coverage, a single incident could destroy everything you’ve built.

For example, you could face major costs from:

• A burst pipe that floods your warehouse, damaging inventory. Without insurance, you’d pay for repairs and replaced stock out of pocket.
• A delivery truck accident that injures other drivers. You’d be liable for their medical bills without commercial auto insurance.
• An employee injury on-site led to a lawsuit. General liability coverage helps pay their claim so your assets are not at risk.

To get insured, first determine your risks. Consider property, general liability, commercial auto, workers comp, etc. Then shop quotes from providers like Hiscox , Next , and Progressive . Compare coverage options and pricing.

Apply by submitting details on your business operations and history. Policies can range from $500-$5,000+ annually depending on the level of protection.

Being underinsured can sink everything. With the right policies, you can rest easier knowing your distribution business is protected if the worst happens.

9. Create an Office Space

Having a dedicated office provides a professional home base for your distribution startup. It’s useful for tasks like payroll, accounting, sales calls, and meetings. Options range from working at home to leasing commercial space.

Home Office

A spare room can be converted into a home office cheaply. Provides flexibility and no commute. However, having staff onsite regularly could violate zoning laws. Isolation can also limit productivity. Expect costs of $100-$500 for basic furnishings and supplies.

Coworking Office

Coworking spaces like WeWork offer affordable shared offices on flexible terms. Great for solopreneurs. Access to amenities like lounges, conference rooms, and printing kiosks for around $300-$800 monthly. But noise and distractions could impact focus.

Retail Office

Retail space gives distribution companies a small storefront if direct-to-consumer sales are part of the model. Ranging from strip malls to standalone buildings, lease rates average $15-$30 per square foot. Benefits onsite visibility but requires manning the location.

Commercial Office

Commercial office leases provide dedicated space with privacy. Standalone small offices rent for approximately $800-$1,500 monthly. Multi-office suites in larger buildings average $1,000-$2,500 monthly. Ideal for stability but requires longer lease terms.

10. Source Your Equipment

Launching a distribution operation requires outfitting your warehouse, fleet, and teams with the right gear. From pallet racks to forklifts, various options exist to procure necessary supplies and equipment:

Major retailers like Costco , Sam’s Club , and BJ’s Wholesale sell a wide range of new equipment and bulk materials ideal for distribution. Products like pallet jacks, shelving, boxes, and labels are competitively priced. The downside is no chance to save on used items.

Buying Used

Check industry classifieds like BizBuySell to find listings for quality used warehouse and delivery equipment near you. Facebook Marketplace and Craigslist are other sources. Can get substantial savings over new. Ensure proper inspection and maintenance.

Equipment rental companies like United Rentals allow flexible access to equipment as needed. Pallet jacks rent for $25+/day and 4,000 lb. forklifts around $150+/day. No large upfront costs but expenses add up with ongoing frequent use.

Leasing equipment from companies provides long-term access to gear like conveyors, lifts, and racking without a huge initial investment. However, hiring general contractors can lock you into set monthly payments. Some flexibility on lease terms.

11. Establish Your Brand Assets

Creating a strong brand is crucial for distribution companies to stand out and be remembered. Your brand identity should be professional, and consistent, and convey your offerings.

Get a Business Phone Number

Getting a unique business phone number from providers like RingCentral shows customers you are legitimate. Dedicated numbers with custom greetings and voicemail boost credibility over using personal devices.

Design a Logo

Your logo is a pivotal part of your brand. Consider an icon, monogram, or abstract mark. Simple designs are memorable and scalable. Services like Looka offer affordable logo design and branding packages to fit your needs.

Print Business Cards

Business cards featuring your logo let sales reps seamlessly share your brand when networking. Signage and vehicle wraps should use your branding too. Vistaprint provides custom cards, banners, decals, and more to unify your visual identity.

Buy a Domain Name

Secure the ideal .com domain for your company quickly before someone else does through registrars like Namecheap . Make it easy to remember – similar to your name is best.

Design a Website

Building a modern, responsive website is a must through platforms like Wix or hiring a web developer from marketplaces like Fiverr . Showcase your capabilities and make it easy for prospects to learn about and contact your company.

12. Join Associations and Groups

Joining relevant local organizations and online communities provides invaluable connections and insights for distribution companies. Surrounding yourself with others in your industry helps you continuously learn and grow.

Local Associations

Search for associations like local chambers of commerce or industry-specific groups like the National Association of Wholesaler-Distributors . Meeting fellow business owners creates referral opportunities and mentorship. Attend association events whenever possible through organizers like NAW and the Houston Northwest Chamber .

Local Meetups

Regularly participating in local meetups and trade shows also expands your network. Sites like Meetup help find upcoming events near you. Bring plenty of business cards and product samples to share. Exchanging ideas in person fosters relationships.

Facebook Groups

Join industry-related Facebook Groups to tap into broader communities. The Wholesale Suppliers & Distributors in the US -SourceSupreme and Rellers / Dealers / Distributors / Manufacturers / Factory Price groups have thousands of members and discussions. Share your challenges and solutions while learning from experienced peers.

13. How to Market a Distribution Business

Implementing an effective marketing strategy is essential for distribution companies to attract new customers and expand. While referrals from your network provide a strong start, you’ll need diverse tactics to increase awareness and sales on an ongoing basis.

Personal Networking

Use your network to begin marketing your brand. Your friends, relatives, and past coworkers can assist with word-of-mouth marketing, passing out business cards, distributing fliers, and more.

Digital Marketing

Leveraging digital channels offers targeted, measurable promotion. Useful online marketing approaches include:

• Google Ads – PPC ads placed on Google Search alongside organic results based on keywords. Costs accrue when ads are clicked.
• Facebook Ads – Highly targeted ads within Facebook and Instagram based on detailed audience parameters to reach your ideal customers.
• SEO – Organic search optimization through keyword research, site optimization, content creation, and link building to rank highly in search engines.
• Email Marketing – Building an email subscriber list to promote services and offers through regular campaigns with a provider like Mailchimp.
• Social Media – Establishing accounts on platforms like LinkedIn, Twitter, and TikTok to interact with followers and share content.
• YouTube Channel – Creating video tutorials, testimonials, and other branded video content viewable on the world’s second-largest search engine.

Traditional Marketing

Traditional approaches still have value for raising local visibility:

• Printed Flyers – Inexpensive to design flyers highlighting your services and contact info to share around your region.
• Newspaper Ads – Local papers remain widely read and provide an established channel to reach nearby customers.
• Radio Spots – Short audio ads during talk radio shows related to business and entrepreneurship can boost brand awareness.
• Direct Mail – Targeted postcard and letter campaigns to businesses in your area that may need your distribution services.

With the right mix of digital marketing and selective traditional promotion, distribution companies can continually attract new accounts and grow revenue. Track results and iterate on what works best.

14. Focus on the Customer

Providing exceptional customer service is pivotal for distribution companies to retain accounts and drive referrals. How you support customers directly impacts your reputation and bottom line.

• Be responsive to inquiries with quick callbacks and emails, even when simply acknowledging requests.
• Set clear expectations for order fulfillment times and meet or beat them.
• Follow up post-delivery to resolve any issues immediately.
• Going above and beyond on service creates memorable experiences.
• For instance, directly assisting a retailer with setting up an initial product display and training staff on features builds lasting goodwill.
• Following up with customers routinely also opens the door for reorder reminders and sharing new offerings.
• Send occasional surveys to monitor satisfaction and identify areas for improvement.
• With the rise of review sites like Yelp, one bad customer experience with retail distributors can significantly damage their brand when shared publicly.

By making customer service a priority, distribution companies demonstrate reliability and value. This establishes trust that leads to repeat business and referrals that fuel sustainable growth.

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How to Start a Wholesale Distribution Business Buy low, sell high: A background in sales and a keen eye for popular merchandise are the keys to success as a wholesale distributor.

Editor's note: This article was excerpted from our Wholesale Business Distribution start-up guide , available from Entrepreneur Bookstore.

So you want to start a wholesale distributorship. Whether you're currently a white-collar professional, a manager worried about being downsized, or bored with your current job, this may be the right business for you. Much like the merchant traders of the 18th century, you'll be trading goods for profit. And while the romantic notion of standing on a dock in the dead of night haggling over a tea shipment may be a bit far-fetched, the modern-day wholesale distributor evolved from those hardy traders who bought and sold goods hundreds of years ago.

The Distributor's Role

According to U.S. Industry and Trade Outlook, published by The McGraw-Hill Companies and the U.S. Department of Commerce/International Trade Administration, wholesale trade includes establishments that sell products to retailers, merchants, contractors and/or industrial, institutional and commercial users. Wholesale distribution firms, which sell both durable goods (furniture, office equipment, industrial supplies and other goods that can be used repeatedly) and nondurable goods (printing and writing paper, groceries, chemicals and periodicals), don't sell to ultimate household consumers.

Three types of operations can perform the functions of wholesale trade: wholesale distributors; manufacturers' sales branches and offices; and agents, brokers and commission agents. As a wholesale distributor, you will probably run an independently owned and operated firm that buys and sells products of which you have taken ownership. Generally, such operations are run from one or more warehouses where inventory goods are received and later shipped to customers.

Put simply, as the owner of a wholesale distributorship, you will be buying goods to sell at a profit, much like a retailer would. The only difference is that you'll be working in a business-to-business realm by selling to retail companies and other wholesale firms like your own, and not to the buying public. This is, however, somewhat of a traditional definition. For example, companies like Sam's Club and BJ's Warehouse have been using warehouse membership clubs, where consumers are able to buy at what appear to be wholesale prices, for some time now, thus blurring the lines. However, the traditional wholesale distributor is still the one who buys "from the source" and sells to a reseller.

Getting Into the Game

The field of wholesale distribution is a true buying and selling game-one that requires good negotiation skills, a nose for sniffing out the next "hot" item in your particular category, and keen salesmanship. The idea is to buy the product at a low price, then make a profit by tacking on a dollar amount that still makes the deal attractive to your customer.

Experts agree that to succeed in the wholesale distribution business, an individual should possess a varied job background. Most experts feel a sales background is necessary, as are the "people skills" that go with being an outside salesperson who hits the streets and/or picks up the phone and goes on a cold-calling spree to search for new customers.

In addition to sales skills, the owner of a new wholesale distribution company will need the operational skills necessary for running such a company. For example, finance and business management skills and experience are necessary, as is the ability to handle the "back end" (those activities that go on behind the scenes, like warehouse setup and organization, shipping and receiving, customer service, etc.). Of course, these back-end functions can also be handled by employees with experience in these areas if your budget allows.

"Operating very efficiently and turning your inventory over quickly are the keys to making money," says Adam Fein, president of Pembroke Consulting Inc., a Philadelphia strategic consulting firm. "It's a service business that deals with business customers, as opposed to general consumers. The startup entrepreneur must be able to understand customer needs and learn how to serve them well."

According to Fein, hundreds of new wholesale distribution businesses are started every year, typically by ex-salespeople from larger distributors who break out on their own with a few clients in tow. "Whether they can grow the firm and really become a long-term entity is the much more difficult guess," says Fein. "Success in wholesale distribution involves moving from a customer service/sales orientation to the operational process of managing a very complex business."

Setting Up Shop

According to Fein, wholesale distribution companies are frequently started in areas where land is not too expensive and where buying or renting warehouse space is affordable. "Generally, wholesale distributors are not located in downtown shopping areas, but off the beaten path," says Fein. "If, for example, you're serving building or electrical contractors, you'll need to choose a location in close proximity to them in order to be accessible as they go about their jobs."

State of the Industry

And that's not all: Every year, U.S. retail cash registers and online merchants ring up about $3.6 trillion in sales, and of that, about a quarter comes from general merchandise, apparel and furniture sales (GAF). This is a positive for wholesale distributors, who rely heavily on retailers as customers. To measure the scope of GAF, try to imagine every consumer item sold, then remove the cars, building materials and food. The rest, including computers, clothing, sports equipment and other items, fall into the GAF total. Such goods come directly from manufacturers or through wholesalers and brokers. Then they are sold in department, high-volume and specialty stores-all of which will make up your client base once you open the doors of your wholesale distribution firm.

All this is good news for the startup entrepreneur looking to launch a wholesale distribution company. However, there are a few dangers that you should be aware of. For starters, consolidation is rampant in this industry. Some sectors are contracting more quickly than others. For example, pharmaceutical wholesaling has consolidated more than just about any other sector, according to Fein. Since 1975, mergers and acquisitions have reduced the number of U.S. companies in that sector from 200 to about 50. And the largest four companies control more than 80 percent of the distribution market.

To combat the consolidation trend, many independent distributors are turning to the specialty market. "Many entrepreneurs are finding success by picking up the golden crumbs that are left on the table by the national companies," Fein says. "As distribution has evolved from a local to a regional to a national business, the national companies [can't or don't want to] cost-effectively service certain types of customers. Often, small customers get left behind or are just not [profitable] for the large distributors to serve."

Starting Out

For entrepreneurs looking to start their own wholesale distributorship, there are basically three avenues to choose from: buy an existing business, start from scratch or buy into a business opportunity. Buying an existing business can be costly and may even be risky, depending on the level of success and reputation of the distributorship you want to buy. The positive side of buying a business is that you can probably tap into the seller's knowledge bank, and you may even inherit his or her existing client base, which could prove extremely valuable.

The second option, starting from scratch, can also be costly, but it allows for a true "make or break it yourself" scenario that is guaranteed not to be preceded by an existing owner's reputation. On the downside, you will be building a reputation from scratch, which means lots of sales and marketing for at least the first two years or until your client base is large enough to reach critical mass.

The last option is perhaps the most risky, as all business opportunities must be thoroughly explored before any money or precious time is invested. However, the right opportunity can mean support, training and quick success if the originating company has already proven itself to be profitable, reputable and durable.

During the startup process, you'll also need to assess your own financial situation and decide if you're going to start your business on a full- or part-time basis. A full-time commitment probably means quicker success, mainly because you will be devoting all your time to the new company's success.

Because the amount of startup capital necessary will be highly dependent on what you choose to sell, the numbers vary. For instance, an Ohio-based wholesale distributor of men's ties and belts started his company with $700 worth of closeout ties bought from the manufacturer and a few basic pieces of office equipment. At the higher end of the spectrum, a Virginia-based distributor of fine wines started with $1.5 million used mainly for inventory, a large warehouse, internal necessities (pallet racking, pallets, forklift), and a few Chevrolet Astro vans for delivery.

Like most startups, the average wholesale distributor will need to be in business two to five years to be profitable. There are exceptions, of course. Take, for example, the ambitious entrepreneur who sets up his garage as a warehouse to stock full of small hand tools. Using his own vehicle and relying on the low overhead that his home provides, he could conceivably start making money within six to 12 months.

"Wholesale distribution is a very large segment of the economy and constitutes about 7 percent of the nation's GDP," says Pembroke Consulting Inc.'s Fein. "That said, there are many different subsegments and industries within the realm of wholesale distribution, and some offer much greater opportunities than others."

Among those subsegments are wholesale distributors that specialize in a unique niche (e.g., the distributor that sells specialty foods to grocery stores), larger distributors that sell everything from soup to nuts (e.g., the distributor with warehouses nationwide and a large stock of various, unrelated closeout items), and midsized distributors who choose an industry (hand tools, for example) and offer a variety of products to myriad customers.

The cornerstone of every distribution cycle, however, is the basic flow of product from manufacturer to distributor to customer. As a wholesale distributor, your position on that supply chain (a supply chain is a set of resources and processes that begins with the sourcing of raw material and extends through the delivery of items to the final consumer) will involve matching up the manufacturer and customer by obtaining quality products at a reasonable price and then selling them to the companies that need them.

In its simplest form, distribution means purchasing a product from a source-usually a manufacturer, but sometimes another distributor-and selling it to your customer. As a wholesale distributor, you will specialize in selling to customers-and even other distributors-who are in the business of selling to end users (usually the general public). It's one of the purest examples of the business-to-business function, as opposed to a business-to-consumer function, in which companies sell to the general public.

Weighing It Out: Operating Costs

Regardless of where a distributor sets up shop, some basic operating costs apply across the board. For starters, necessities like office space, a telephone, fax machine and personal computer will make up the core of your business. This means an office rental fee if you're working from anywhere but home, a telephone bill and ISP fees for getting on the internet.

No matter what type of products you plan to carry, you'll need some type of warehouse or storage space in which to store them; this means a leasing fee. Remember that if you lease a warehouse that has room for office space, you can combine both on one bill. If you're delivering locally, you'll also need an adequate vehicle to get around in. If your customer base is located further than 40 miles from your home base, then you'll also need to set up a working relationship with one or more shipping companies like UPS, FedEx or the U.S. Postal Service. Most distributors serve a mixed client base; some of the merchandise you move can be delivered via truck, while some will require shipping services

While they may sound a bit overwhelming, the above necessities don't always have to be expensive-especially not during the startup phase. For example, Keith Schwartz, owner of On Target Promotions, started his wholesale tie and belt distributorship from the corner of his living room. With no equipment other than a phone, fax machine and computer, he grew his company from the living room to the basement to the garage and then into a shared warehouse space (the entire process took five years). Today, the firm operates from a 50,000-square-foot distribution center in Warrensville Heights, Ohio. According to Schwartz, the firm has grown into a designer and importer of men's ties, belts, socks, wallets, photo frames and more.

To avoid liability early on in his entrepreneurial venture, Schwartz rented pallet space in someone else's warehouse, where he stored his closeout ties and belts. This meant lower overhead for the entrepreneur, along with no utility bills, leases or costly insurance policies in his name. In fact, it wasn't until he penned a deal with a Michigan distributor for a large project that he had to store product and relabel the closeout ties with his firm's own insignia. As a result, he finally rented a 1,000-square-foot warehouse space. But even that was shared, this time with another Ohio distributor. "I don't believe in having any liability if I don't have to have it," he says. "A warehouse is a liability."

The Day-to-Day Routine

"One reason that wholesale distributors have increased their share of total wholesale sales is that they can perform these functions more effectively and efficiently than manufacturers or customers," comments Fein.

To handle all these tasks and whatever else may come their way during the course of the day, most distributors rely on specialized software packages that tackle such functions as inventory control, shipping and receiving, accounting, client management, and bar-coding (the application of computerized UPC codes to track inventory).

And while not every distributor has adopted the high-tech way of doing business, those who have are reaping the rewards of their investments. Redondo Beach, California-based yoga and fitness distributor YogaFit Inc., for example, has been slowly tweaking its automation strategy over the past few years, according to Beth Shaw, founder and president. Shaw says the 25-employee company sells through a website that tracks orders and manages inventory, and the company also makes use of networking among its various computers and a database management program to maintain and update client information. In business since 1994, Shaw says technology has helped increase productivity while cutting down on the amount of time spent on repetitive activities, such as entering addresses used to create mailing labels for catalogs and individual orders. Adds Shaw, "It's imperative that any new distributor realize from day one that technology will make their lives much, much easier."

Who Are Your Customers?

Because every company relies on a pool of customers to sell its products and/or services to, the next logical step in the startup process involves defining exactly who will be included in that pool. Defining this group early on will allow you to develop business strategies, define your mission or answer the question "why am I in business?" and tailor your operations to meet the needs of your customer base.

As a wholesale distributor, your choice of customers includes:

Retail businesses: This includes establishments like grocery stores, independent retail stores, large department stores and power retailers like Wal-Mart and Target.

Retail distributors: This includes the distributors who sell to those retailers that you may find impenetrable on your own. For example, if you can't "get in" at a power retailer like Wal-Mart, you may be able to sell to one of its distributors.

Exporters: These are companies that collect United States-manufactured goods and ship them overseas.

Other wholesale distributors: It's always best to buy from the source, but that isn't always possible, due to exclusive contracts and issues like one-time needs (e.g., a distributor who needs 10 hard hats for a customer who is particular about buying one brand). For this reason, wholesale distributors often find themselves selling to other distributors.

The federal government: Uncle Sam is always looking for items that wholesale distributors sell. In fact, for wholesale distributors, selling to the government presents a great opportunity. For the most part, it's a matter of filling out the appropriate forms and getting on a "bid list." After you become an official government supplier, the various buying agencies will either fax or e-mail you requests for bids for materials needed by schools, various agencies, shipyards and other facilities.

For a small wholesale distributor, there are some great advantages to selling to the government, but the process can also be challenging in that such orders often require a lengthy bidding process before any contracts are awarded. Since opening her Redondo Beach, California, distributorship in 1994, Beth Shaw of YogaFit Inc. says she's made several successful sales to the government. Currently, the firm sells its exercise education programs and several styles of yoga mats to Army bases and other entities. Calling government sales "a good avenue" for wholesale distributors, Shaw says it's also one that's often overlooked, "especially by small businesses."

Finding a Profitable Niche

In other words, what matters is not so much what you sell, but how you sell it. There are profitable opportunities in every industry-from beauty supplies to hand tools, beverages to snack foods. No matter what they're selling, wholesale distributors are discovering ways to reaffirm their value to suppliers and customers by revealing the superior service they have to offer, as well as the cost-saving efficiencies created by those services. This mind-set opens up a wealth of opportunities to provide greater attention to the individual needs of customers, a chance to develop margin growth, and greater flexibility in product offerings and diversification of the business.

The whole trick, of course, is to find that niche and make it work for you. In wholesale distribution, a niche is a particular area where your company can most excel and prosper-be it selling tie-dyed T-shirts, roller bearings or sneakers. While some entrepreneurs may find their niche in a diverse area (for example, closeout goods purchased from manufacturers), others may wish to specialize (unique barstools that will be sold to regional bars and pubs).

On the other side of the coin, too much product and geographical specialization can hamper success. Take the barstool example. Let's say you were going to go with this idea but that in six months you'd already sold as many barstools as you could to the customer base within a 50-mile radius of your location. At that point, you would want to diversify your offerings, perhaps adding other bar-related items like dartboards, pool cues and other types of chairs.

The decision is yours: You can go into the wholesale distribution arena with a full menu of goods or a limited selection. Usually, that decision will be based on your finances, the amount of time you'll be able to devote to the business, and the resources available to you. Regardless of the choices you make, remember that market research provides critical information that enables a business to successfully go to market, and wholesale distributors should do as much as they can-on an ongoing basis. It is better to do simple research routinely than to shell out a lot of money once on a big research information project that may quickly become outdated.

Pinpointing a Startup Number

While entrepreneurs in some industries seem to be able to raise money with a snap of their fingers, most have to take a more detailed approach to the process. Perhaps the best starting point is to figure out just how much you need.

In the wholesale distribution sector, startup numbers vary widely, depending on what type of company you're starting, how much inventory will be necessary and what type of delivery systems you'll be using. For example, Keith Schwartz, who got his start selling belts and ties from his basement in Warrensville Heights, Ohio, started On Target Promotions with $700, while Don Mikovch, president of the wine distributor Borvin Beverage in Alexandria, Virginia, required $1.5 million. While Schwartz worked from a desk and only needed a small area in which to store his goods, Mikovch required a large amount of specialized storage space for his wines-and a safe method of transporting the bottles to his retailers.

The basic equipment needed for your wholesale distributorship will be highly dependent on what you choose to sell. If you plan to stock heavy items, then you should invest in a forklift (some run on fuel or propane, others are man-powered) to save yourself some strain. Pallets are useful for stocking and pallet racking is used to store the pallets and keep them in order for inventory purposes.

For distributors who are sourcing, storing and selling bulky goods (such as floor tile, for example), a warehouse of sufficient size (based on the size of products you're selling and the amount of inventory you'll be stocking) is a necessity. To ensure that the distribution process operates smoothly, select a location that allows you to move around efficiently and that includes the necessary storage equipment (such as pallet racking, on which you can store pallets). Don't forget to leave room for a forklift to be able to maneuver between racks of pallets and shelves stored in the warehouse.

As a startup distributor, your initial inventory investment will depend on what you're selling. Expect to carry some inventory, no matter what the product is, but also understand that your choice of goods will have some effect on how much you'll need to shell out upfront. Schwartz was buying surplus apparel, so $700 gave him plenty to work with for the first few months. When Garth Gordon and Vivienne Bramwell-Gordon, president and vice president, respectively, of Tampa, Florida-based Phones Etc., founded their company, they invested about $2,400 to purchase a shipment of high-end telephones. They quickly turned them around for a 300-percent profit and have been in the business of distributing refurbished Avaya telecom equipment to small companies and nonprofit groups ever since. Today, Phones Etc. carries about $600,000 in inventory at any given time.

Bill Green, managing partner at WSG Partners LLC in Cherry Hill, New Jersey, says the best way to determine inventory needs is to look at your customers' needs. If they're the type who "need everything yesterday" (contractors working on job sites would fall into this category), then your inventory will need to be ample enough to meet those last-minute requests. However, if there's usually a three-to-four-day span between order-taking and delivery, then you may be able to skimp a bit on inventory and instead focus on forming solid, reliable relationships with vendors who can help you meet those timelines.

"The most successful distributorships are the ones [whose owners] are working as close to their customers as possible and who can predict their needs and be there to provide value-along with the products," says Green. "That doesn't necessarily mean you need a huge warehouse and inventory, but you will need to find vendors who will 'hold' that inventory for you until your own customers ask for it."

Inventory Matters

There are caveats to both strategies. For starters, when a company chooses not to stock up, it runs the risk of being out of an item when the customer comes calling. At the same time, the distributors who overstock can find themselves in a real pickle if they can't get rid of merchandise they thought they could unload easily.

Being a distributor is all about "turning" inventory (selling everything you have in stock and then replenishing it)-the more times you can turn your inventory in a year, the more money you will make. Get the most turns by avoiding stocking items that may end up sitting in your warehouse for more than 90 days.

Stocking Up.Or Not?

On the other hand, if you are servicing a varied customer base located in different geographic areas, you may need to stock a little more than the entrepreneur in the previous example. Because you probably won't be visiting those customers at their locations, it may take a few months before you can determine just how much product they will be buying from you on a regular basis. Of course, you must also leave some breathing room for the "occasional" customer-the one who buys from you once a year and who will probably always catch you off guard. The good news is that having relationships with vendors can help fill those occasional needs quickly, even overnight or on the same day, if necessary.

"The biggest mistake companies make is developing an inventory load that is larger than what they really need," says Rich Sloan, co-founder of small-business consultancy StartupNation.com in Birmingham, Michigan. "The investment winds up sitting out in the warehouse when it could be put to much better use." Sloan says companies also jump into inventory purchases too quickly, without factoring in their customers' wants and needs-yet another way to wrap up too much investment in items that will be slow to move. "The trick is to keep it as lean as possible. That's a very smart, lower-risk way to go."

At Keith Schwartz's wholesale belt and tie distributorship in Warrensville Heights, Ohio, all it took was a $700 investment in closeout ties to get started. He resold them to a drugstore, pocketed the profits and reinvested the money in more inventory. It's a simple formula and one that works well for the small startup entrepreneur who is operating with low overhead.

The distributor who has already invested in a location, vehicles and other necessities should also factor product life cycle into the inventory equation. Those with longer life cycles (hand tools, for example) are usually less risky to stock, while those with shorter life cycles (food, for example, usually has a short life cycle) can become a liability if there are too many of them on the shelf. The shorter the life cycle, the less product you'll want to have on hand. Ultimately, your goal will be to sell the product before having to pay for it. In other words, if you are buying computers, and if the manufacturer offers you 30-day payment terms, then you'll want to have less than 30 days' worth of inventory on the shelf. That way, you never end up "owning" the inventory and instead serve as a middleman between the company that's manufacturing and/or selling the product and the one that's buying it.

To sum up the tricks to stocking a wholesale distributorship:

• Don't overdo it when it comes to buying inventory.
• Try to get a grasp on your customers' needs before you invest in inventory.
• If you can get away with doing it cheaply at first (especially those with low overhead), then go for it.
• Be wary of investing too much in short- life-cycle products, which you may get stuck with if they don't sell right away.
• Stock up to a level where you can sell the product before you have to pay for it.

For distributors, the biggest challenge is running your business on low operating profit margins. Adam Fein of Philadelphia-based Pembroke Consulting Inc. suggests making your operations as efficient as possible and turning inventory around as quickly as possible. "These are the keys to making money as a wholesale distributor," he says.

And while the operating profit margins may be low for distributors, Fein says the projected growth of the industry is quite optimistic. In 2004, total sales of wholesaler-distributors reached $3.2 trillion, and for 2005 Fein expects revenue growth to continue to outpace the growth of the economy overall, growing an estimated 7.7 percent (vs. projected gross domestic product growth of 3.5 percent).

Playing the Markup Game

Distributors can use the following formula when it comes to markup: 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. Thus, there is a 400 percent markup from manufactured price to the wholesaler's customer.

Wholesale Distribution Business Resources Associations and Professional Organizations

• Alabama Wholesale Distributors Association, (205) 823-8544
• American Wholesale Marketers Association
• California Distributors Association, (916) 446-7841
• Colorado Association of Distributors, (303) 690-8505
• General Merchandise Distributors Council, (719) 576-4260
• Idaho Wholesale Marketers Association, (208) 342-8900
• Industrial Supply Association
• Mississippi Wholesale Distributors Association, (601) 605-1482
• National Association of Wholesaler-Distributors
• North Carolina Wholesalers Association, (919) 271-2140
• Southern Association of Wholesale Distributors
• Texas Association of Wholesale Distributors, (512) 346-6912
• Virginia Wholesalers & Distributor Association, (804) 254-9170
• West Virginia Wholesalers Association, (304) 342-1081
• Integrated Distribution Management: Competing on Customer Service, Time and Cost by Christopher Gopal and Harold Cypress (Business One Irwin)
• Facing the Forces of Change: The Road to Opportunity by Pembroke Consulting ( www.pembroke_consulting.com )
• Managing Channels of Distribution by Kenneth Rolnicki (Amacom Books)
• The Complete Distribution Handbook by Timothy Van Mieghem (Prentice Hall)
• Wholesale Distribution Channels: New Insights and Perspectives by Bert Rosenbloom (Haworth Press)

Publications

• Electronic Distribution Today
• Industrial Distribution
• Modern Distribution Management

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How to Build a Distribution Business in 15 Easy Steps (2023)

In this post, I am going to show you how to build a distribution business in 15 easy steps. Distribution is the vital link between producers and retailers of goods. In many cases, a distributor serves as a buffer between the two, so each party can have more control over their respective operations. But to be honest with you, this is not just for businesses. Distributors also make it easier for companies and individuals to have access to a variety of resources that meet their needs. When you look at the whole chain from distributors to producers, you can use many different distribution models in your business. These range from the traditional three-tier model used in most retail companies today, to the two-tiered approach popularized by many franchise businesses.

A distribution business is an excellent way to start your own business. It is one of the most popular ways to start a business because it is easy to set up and manage. This means you can start doing it as soon as possible so that you can earn some money for your family.

However, if you are new in this field, then you should know that the distribution business is not as simple as it seems to be. For this reason, we have prepared this article for you which will guide you through all the steps that you need to follow while starting a distribution business.

Step 1: Write your Distribution Business Plan

The first step in starting your own distribution business is writing a distribution plan or strategy. You should know what kind of products will sell best in your area and how much money people are willing to spend on these items. In addition, you also need to identify specific customers who will buy these products at fair prices and high-quality standards.

Before you can begin building your distribution business, it’s important to understand what you’re getting yourself into. 

If you haven’t already done so, write a business plan for your distribution company. It doesn’t have to be a formal document, but it should contain the following information:

• A description of the products or services you intend to distribute.
• The geographic area you intend to service.
• An estimate of your sales and costs for your first year in business.
• A description of how you will use working capital (cash) and long-term financing to fund operations until profits begin flowing.
• A list of resources you will need in order to open for business — including equipment, supplies, and personnel (employees).

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Step 2: Select your product

The first step in building a distribution business is to select your product. There are many different products that you could sell, but you need to make sure that you have enough capital and that the product offers good margins. When it comes to selecting a product, consider what will be the most profitable for your business. If you’re not sure which products offer good margins, check out our guide on how to find profitable products to sell.

Step 3: Form a legal entity+

In order to start selling products, you need to form a legal entity and register it with the government. This is because selling products requires a lot of paperwork and taxes that need to be paid by an individual can be very complicated. By forming an LLC (Limited Liability Company), you can protect yourself from any liability issues since it protects personal assets from creditors if something goes wrong with the company. The good thing about forming an LLC is that you don’t have any limits on how many members there are in your business or how many shareholders you have; however, there are some restrictions on who can form one (only individuals).

Step 4:  Establish your niche

Once you’ve decided on a product, it’s time to decide what kind of distribution model you want to pursue. There are two basic options: retail, wholesale, and drop shipping.

Retail sales

The most obvious option is to open a physical store that sells your products directly to customers. This is probably how you think about starting a business, since it’s the easiest way to get started and see immediate results. The downside is that running a brick-and-mortar store is expensive and time-consuming — and if you don’t have experience running one, it can be difficult to succeed at first (especially if you don’t have any prior ecommerce experience).

Wholesale distribution

Another way to distribute your products is by working with other retailers who already have established customer bases. This means signing up with distributors and wholesalers who will handle order fulfillment for you (i.e., get your products from the manufacturer and ship them directly to customers). This can be an appealing option because it lets you focus on selling rather than logistics or customer service — but it also means getting paid less per sale because there are multiple layers of markup.

Step 5: Decide if you want to be an independent distributor or a direct sales rep

Independent distributors are independent contractors who sell products and services on behalf of the company. Direct sales reps work for themselves, but they represent a specific company and earn income from selling its products or services. Both types of distributors must register with the state and federal governments as self-employed businesses.

Step 6: Register your business name and get your business license if necessary

If you’re going to be selling products directly to consumers, you’ll need a seller’s permit or retail license in most states. If you’re going to be selling products through retail establishments or other wholesale channels, you may not need this registration at all — check with your state government to find out what’s required where you live.

Step 7: Register for taxes

As an independent contractor, you’ll need to pay self-employment taxes on any income from your new business — including any bonuses or commissions that might come along in later years. You may also have to pay income taxes if your monthly income reaches certain thresholds (typically $400/mo for individuals in most states). It’s always best to consult with a tax expert before launching any new enterprise.

Step 8: Obtain necessary permits and licenses

Before you start your distribution business, you’ll need to obtain all the licenses, permits and other documents required by your state. These may include:

Business license. Every state has its own rules for starting a business, but most require a business license issued by your county or city government. You can usually apply online for a business license, although some jurisdictions require you to visit your county clerk’s office in person. Depending on where you live, the cost of a license may range from $25 to $100 for each location in your business.

Sales tax license. Every state requires businesses that make sales within its borders to register with that state’s Department of Revenue and obtain a sales tax identification number (STID). You can register online using an application form available on the website of the department or by calling their customer service center at 800-252-8980. The cost is generally $30-$50 annually per location in your business.

Employee identification number (EIN). Also known as an Employer Identification Number (EIN), this is another type of identification number that’s used when reporting taxes on income generated by self-employment and sole proprietorship

Step 7: Get business insurance

It’s important to have proper insurance coverage in place before opening your doors. This will protect you if someone is injured or there’s damage to property, as well as protect against liability claims if someone gets sick after eating at your restaurant. You’ll also want to make sure that all of your employees are covered by workers’ compensation insurance.

Step 8: Define your brand

The next step is defining what makes your restaurant unique and what sets it apart from other restaurants in the area. A strong brand helps set new restaurants apart from the competition, so take some time to think about how you want to present yourself — and how you want people to perceive you.

Step 9: Set up your online presence

If you’re going to be selling products or services on a website, it’s important that people can find you online. So if you don’t already have a website, now is the time to create one! If you do already have one, make sure it’s up-to-date and easy to navigate.

Step 10: Establish an accounting system/bookkeeping process now – so you’re not scrambling at tax time!

You’re going to need some way of tracking all of your expenses, income, and other financial records so that when tax time comes around each year (and it will!) you can easily file all of those forms and get money back from the government if necessary. The best way to do this is by setting up some sort of accounting software like QuickBooks or Xero so that everything is neatly organized by category and date, with no confusion about where the money went or came from and when it was spent or earned.

Step 11. Develop your business skills

The first step to building a distribution business is to develop your business skills. This means learning about inventory management, customer service, sales, marketing and other areas of the business. Even if you have never worked in the industry before, there are many resources available online that can help you learn what it takes to run a successful distribution company.

Step 12: Contact manufacturers

Once you have learned some basic skills, contact manufacturers directly and ask them if they would like to sell their products through your distribution channel. This may be easier said than done because many manufacturers don’t sell directly to distributors or wholesalers; instead, they prefer to sell directly to retailers or customers who buy direct from their website. However, some manufacturers will be willing to work with a new distributor and might even offer special incentives for new partners. For example, they might give you a discount on their products or allow you access to special promotions that aren’t available elsewhere.

Step 13: Consult with retailers

Consult with local retailers about their needs for new product lines and services. Offer yourself as a consultant by providing them with advice on ways to improve their sales and profits through better merchandising practices or by helping them find new products that will appeal more directly to their customers than what they currently offer in their stores.

Key Takeaway 

Distribution is a field that requires constant growth and renovation for the operating company to compete successfully in the marketplace. From simply adopting new technologies to battling larger companies, entrepreneurs need to stay ahead of their competition. 

The time is nigh for ethical, sustainable, niche-driven business owners from all over the world to assemble, and together we will positively transform our industries. Our businesses will give back in many ways. We are on the precipice of a revolution, a movement that has already begun by some. And you’re cordially invited to join us. Consider this an invitation to start your own distribution business. Here are 15 steps that’ll get you there.

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Distribution Plan

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Do you ever wonder how your favorite products get from the factory to your doorstep? Or how do businesses decide which stores to sell their products in? 

Well, that’s where a distribution plan comes in! 

A distribution plan is like a roadmap that helps businesses get their products to the right customers, at the right time, and in the right place. Without a solid distribution plan, businesses can struggle to get their products in front of potential customers and can lose out on valuable sales. 

In this post, we’ll dive into the world of distribution planning and explore the key components and best practices for creating a successful plan.

Shall we start?

What is a distribution plan?

A distribution plan is a detailed strategy that outlines the steps required to move a product or service from production to the final customer. It includes logistics, channels of distribution, market research, budget, metrics, and review and adjustment. 

The distribution plan’s benefit is that it aids companies in effectively targeting their target market while maximizing resource allocation. The timely and affordable delivery of goods or services to customers boosts customer satisfaction and boosts corporate revenues thanks to a well-planned distribution plan.

Without a distribution plan, businesses can find it difficult to provide goods or services to clients, which could harm their reputation and reduce their profitability. Each business that wants to be successful and continue to be competitive and meet customer demand must have a distribution plan.

Creating a distribution plan

Now that you have a solid idea of what a distribution plan is, let’s go into the procedures and pointers for developing a distribution strategy that benefits your company.

• Understand your target audience needs: Identify and comprehend the target group’s particular requirements and preferences .
• Determine logistics: Find the most efficient and affordable way to transport the good or service from the point of production to the consumer or end-user.
• Choose distribution channels: Choose the finest distribution channels for reaching clients, including direct sales, online sales, retail stores, wholesalers, and distributors.
• Conduct market research: Identify the most efficient ways to reach potential customers by conducting market research to better understand consumer preferences and purchasing patterns.
• Develop a budget: Prepare a budget that accounts for all expenses related to the distribution plan, such as marketing, publicity, logistics, and transportation.
• Set performance metrics: Specify performance indicators, such as customer satisfaction, sales volume, and market share, to gauge how well the distribution plan is working.
• Evaluate and modify your plan: Assess the distribution plan on a regular basis and make revisions in response to shifting market conditions, client demands, and other elements that could affect the plan’s success.

Best practices for creating a successful distribution plan

Creating a successful distribution plan requires a combination of strategic thinking, market knowledge, and operational efficiency. Here are some best practices for creating a successful distribution plan:

• Focus on the customer: Make sure your distribution plan is centered around meeting the needs and preferences of your target customers.
• Be flexible and adaptable: Be prepared to adjust your plan based on changing market conditions, customer needs, and other factors that may impact your distribution strategy.
• Collaborate with partners: Work closely with suppliers, distributors, and other partners to ensure that all aspects of the distribution plan are aligned and optimized.
• Use technology to optimize logistics: Leverage technology solutions to streamline logistics, improve inventory management, and reduce costs.
• Continuously monitor and evaluate performance: Regularly review performance metrics and use data insights to optimize your distribution plan.
• Stay up to date on market trends and competition: Keep a close eye on industry trends and your competitors to stay ahead of the curve and remain competitive.

Final Thoughts

In order to get your goods or services into the hands of your clients, you need a distribution plan. By making the most of your resources to the fullest extent possible and routinely modifying your plans, you can boost your business sales and remain competitive.

It’s essential to spend the required time developing a solid distribution plan that meets the objectives of your business and delivers your products to your target market. Start today and see the results for yourself!

Frequently Asked Questions

A distribution plan outlines the steps required to move a product or service from production to the final customer, ensuring that the right product is delivered to the right place, at the right time, and in the right condition.

To design a distribution strategy, you must first identify your target audience and their demands, as well as the most effective logistics, distribution channels, and market research. You should also develop a budget, establish performance criteria, and periodically evaluate and tweak the plan.

Understanding consumer preferences and purchasing patterns can help firms make decisions regarding the distribution channels to use and the best ways to manage logistics.

The success of a distribution plan can be evaluated using performance indicators including customer satisfaction, sales volume, and market share.

It’s critical to periodically assess and modify your distribution plan in light of evolving market conditions, client demands, and other elements that could affect the plan’s effectiveness.

Businesses may optimize logistics, enhance inventory management, and cut expenses with the aid of technological solutions including inventory management systems, transportation management systems, and analytics tools.

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DISTRIBUTION STRATEGY

The big picture on distribution strategy.

Distribution models drive the economics and growth potential of companies.

Many companies are innovating through low-cost and viral digital and online distribution channels.

In most industries, some company is compressing the value chain by going direct...shouldn't it be you?

When growing distribution, focus on alignment and synergy with other business model elements.

THERE ARE 3 MAIN DISTRIBUTION STRATEGIES

Distribution is how a business makes its value proposition available to customers. There are three main distribution strategies:

1. Direct - company-owned channels

2. Indirect - 3rd party channels

3. Hybrid - both company-owned & 3rd party

Direct distribution is about company-owned channels, which could include a company's website, contact center, sales team , retail, and office locations. Indirect distribution is about intermediaries such as distributors, agents, brokers, online-only and omnichannel retailers, value-added resellers, partners , and franchisees. Hybrid distribution utilizes both direct and indirect channels.

1. Going Direct - Customer Experience & Economics

More and more companies are moving from indirect distribution to direct or hybrid distribution. These companies want to lower costs and pricing by compressing the value chain while owning the customer experience and relationship.

Companies with direct distribution remove an often expensive intermediary from the value chain. Much of traditional retail utilizes keystone pricing (100% markup, $10 factory cost translates to $20 wholesale, which translates to $40 retail). By going direct, a company can take that $10 product and price it at $25 or $30, while making much more in gross margin. The first retail direct distribution innovators were back in the 70s with the likes of The Gap, Victoria's Secret, and other vertically integrated retailers. Today companies like Anker (power packs) and Vice (golf balls) are utilizing direct and low-capital, low-cost online channels to disrupt their markets .

Direct distribution also gives the company ownership to craft and manage their customer experience and relationship, which drives conversion, and loyalty and is crucial for complex sales, and innovative products and services. Apple took the world by storm by going direct with Apple Stores, and Tesla did the same when they rolled out Tesla showrooms in high-traffic malls. Both Tesla and Apple differentiated themselves from their competition by owning their customer experience and relationship, while also benefiting from compressing their value chain.

Pretty much every industry has innovators leveraging direct distribution to improve the customer experience and relationship, cost and pricing economics , and overall agility. If your business isn't direct, it may be time to try and figure it out.

2. Indirect Distribution - Efficiently Scaling

A company with indirect distribution, partners with 3rd parties to sell and fulfill a company’s value proposition. These 3rd parties can be retailers, value-added resellers (VARs), partners, franchisees, distributors, and brokers. For many industries, such as the beverage industry (Coke, Pepsi), the norm is to leverage indirect distribution, in the form of distributors, supermarkets, convenience stores, vending machines, and restaurants. Even in a predominately indirect distribution industry, such as beverages, there are always players looking to take out middlemen, such as Trader Joe's, an entire grocery retailer that only sells its own brands.

Companies often utilize indirect distribution to focus on their core competencies , while gaining access to customers by leveraging channel partners. A company with indirect distribution gives up margin to channel partners but saves on the costs and capital necessary to go direct. For a company leveraging indirect distribution, the key to growing sales is to drive better value and economics for channel partners than the competition . For retailers, it is driving superior gross margin dollars per square foot. For VARs, it is total sales and margin versus the cost of sales.

If your company primarily leverages indirect distribution, deeply understand players that are going direct, because they are most likely changing the industry dynamics through better economics and more consistent and elevated customer experiences.

3. Hybrid - Almost the Best of Both Worlds

Many companies have a hybrid distribution model, utilizing both 3rd party and direct channels to sell and fulfill their value proposition . With hybrid distribution, companies get the broad distribution of indirect channels, while owning the customer experience and expanding margin through their direct channels.

Nike is a great example of a hybrid distribution model. Nike sells in tens of thousands of 3rd party stores and retailers across the world. Yet, in 2017, direct channels, including Nike.com, and more than 1000 flagship and outlet stores accounted for  28% of Nike's total sales versus 10% in 2010. And, Nike is differentiating their direct channels with personalized Nike ID shoes, exclusive styles, and the broadest selection. Not only are they owning the customer experience, relationship, and data through direct channels, but they

Nike has a hybrid distribution model. Nike sells in tens of thousands of 3rd party stores and retailers across the world. Nike also has direct channels, including Nike.com, and more than 1000 flagship and outlet stores accounted for 28% of Nike's total sales in 2017 versus 10% in 2010. Nike is differentiating their direct channels with personalized Nike ID shoes, exclusive styles, and the broadest selection. Nike is heavily investing in their direct channels because they own the customer experience and make 2-3X in gross margin on each pair of shoes they sell directly versus indirectly. Nike sells a pair of shoes that cost $20 to the manufacturer to a retailer for $40, and the retailer marks it up to $80 to the customer. In this example, Nike would make $20 on the shoes, but if they sell them on Nike.com for $80, then they would make $60 in margin on the shoes. This margin expansion is a big reason why more companies are going direct.

The one longer-term potential disadvantage of a hybrid model is that a direct distribution model could come in and structurally undercut the pricing of the industry.

If you are looking for a business coach to collaborate on your distribution strategy, set up some on-demand one-on-one time with Joe Newsum , the creator of this content and a McKinsey alum

DISRUPTIVE DISTRIBUTION MODELS

Disruptive distribution models are becoming more and more central to the core strategy of companies. Think about Southwest, which doesn’t sell tickets through Expedia, Priceline, and travel agents, but only on southwest.com and 1-800-I-FLY-SWA. Tesla has redefined car retailing with showrooms in shopping malls, bypassing typical dealer networks. Apple wanted to give customers the ultimate showroom to showcase their new products and opened the most productive and profitable retail store network in the world.

Maybe your distribution model is what it is, and you have to follow what the industry does. Though, given the reach and innovation of online distribution models, and what other competitors might be doing in innovating their distribution model, it may make sense to reexamine your distribution model and take some time to think through if you have the right distribution model for your situation or you need to innovate .

In 2012, Dollar Shave Club took the world by storm through distribution innovation. Michael Dubin, the founder of Dollar Shave Club, identified the age-old problem that, " razors are really expensive in the store. It's a frustrating experience to go and buy them. You have to drive there. You have to park your car. You have to find the razor fortress. It's always locked. You have to find the guy with the key. He's always doing something else that he doesn't want to be helpful."

At the time, the razor market was on the plateau of its adoption curve , and was a typical mature market two-company race, with Gillette owning 80% of the market and Schick a distant second. In 2012, a Gillette Fusion ProGlide blade would have set you back a cool $4. So, when Dollar Shave Club, comes out of nowhere with the coolest bootstrapped $4,500 viral ad to ever hit Youtube, promising "F**cking Great" blades for $1 a month, customers loved the value proposition. Within two days of the viral video, Michael's team racked up 12,000 orders and ran out of supply.

At the heart of Dollar Shave Club's value proposition is the cost savings that are passed on to the customer from disintermediating traditional shaving industry distribution of retail stores. Then add on the cost savings of bypassing traditional marketing for cost-effective viral marketing , and you can start to understand the $1 a month for blades value proposition.

The value proposition and go-to-market were so strong that Dollar Shave Club grew to $65 million in revenue in two years, and in five years had 8% of the market and $240 million in revenue. In 2016, Unilever bought Dollar Shave Club for $1 billion.

The Big Decision - Which Distribution Model?

When Expanding, Think About Distribution Models

DIRECT DISTRIBUTION GROWTH STRATEGY

If you have direct distribution, then you need to focus on the strategies for your direct channels, which may include a website, contact center(s), sales staff, and locations. Your direct channels are an integral part of your overall customer funnel. You drive revenue growth by increasing and accelerating awareness, consideration, conversion, loyalty (repeat business), and advocacy . Understanding where your customer funnel excels and lags is critical to prioritizing investments. Read up on developing and executing a great sales strategy and marketing strategy . Furthermore, there are the foundational operations and IT strategies necessary to drive efficient and effective execution within your website and contact centers.

If you have locations, then you have three options to grow:

1. Optimize Locations

2. Grow the Number of Locations

3. Rationalize Locations

Optimizing locations involves driving revenue per location through operational and service excellence, new leadership , remodeling, and improving sales and marketing. For growing the number of locations, leverage the geographic strategy module to understand how to choose the right geographies to expand into that are aligned with your targets and economics. While rationalizing locations is often necessary to shed unprofitable and non-aligned locations from the portfolio.

INDIRECT DISTRIBUTION GROWTH STRATEGY

3 Main Options to Grow Indirect Distribution

There are three main ways to grow revenue with 3rd party channel partners, 1. Optimize, 2. Grow Points of Distribution, and 3. Rationalize. 

1. Optimize – Increase sales within existing channels by improving the value proposition, customer journey, marketing, and sales

2. Grow Points of Distribution – Increase the total number of productive points of distribution (e.g., channel partners, stores)

3. Rationalize – Shed points of distribution that are non-productive, or are not aligned with the brand, customers, markets, or other business model elements

1. Optimize Channel Partners

In the end, the relationship between a company and its channel partners always comes down to value. The more value a company can drive through a channel partner, the more the channel partner will focus on the company. Channel partnerships are co-dependent relationships. Similar to the overall business model strategy , it is crucial to differentiate the customer value proposition and amplify the sales and marketing strategies within a channel partner while providing them with efficient processes and operations.

So, when thinking about growing sales within existing channel partners, answer the following questions :

How can you differentiate your value proposition with and improve the overall economics for your distribution partners?

What marketing campaigns and strategies will drive volume for your distribution partners?

What sales support strategies will drive velocity and conversion in your channel partners' sales cycles?

What processes need improvement to better support channel partner growth and satisfaction?

1. Optimize : Utilize a Partner Growth Plan

2. Grow Points of Distribution

3. Rationalize Channel Partners

Putting it all together in a plan.

Distribution is a critical growth element of any business model. Whether you rely on direct, indirect or hybrid distribution, it is important to develop a strong distribution strategy to focus the execution of the teams.

If you would like to talk to an expert about your distribution strategy, set up some time with Joe Newsum , a McKinsey Alum with significant experience with distribution strategy.

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1. Distribution Partner Growth Plan 2. Distribution Partner Assessment Matrix 3. Distribution Growth Strategy One-Pager

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How to Start a Distribution Business

Last Updated: May 3, 2024 Approved

This article was co-authored by Art Lewin . Art Lewin is an Entrepreneur based in Los Angeles, California. He specializes in business, sales, marketing, and real estate investing. Art is the CEO and Founder of four companies based in Los Angeles: Art Lewin Bespoke, Healthy Choice Labs, SFR Properties, and Professional Business Network (PBN). Art is known globally for his exclusive custom-made and ready-to-wear business wear designs. Some of his notable clients include royal family members, politicians, and Hollywood stars including Hugh Hefner, Sylvester Stallone, Johnny Carson, Steve Allen, and William Shatner. wikiHow marks an article as reader-approved once it receives enough positive feedback. In this case, 94% of readers who voted found the article helpful, earning it our reader-approved status. This article has been viewed 344,724 times.

Getting into product distribution means entering a big industry. For example, there are roughly 300,000 distributors in the United States that produce a combined $3.2 trillion in annual revenue. Despite this large number of participants, the fragmented and competitive nature of the industry allows for plenty of profitable new entrants. [1] X Research source With some planning and entrepreneurial spirit, you too can be on your way to owning a successful distribution business.

Creating a Business Strategy

• While many large companies are served by equally large distributors, these distributors are unwilling or unable to serve smaller, more specialized business. A good idea, especially in a crowded market like beverage distribution, might be to provide niche products to these specialized retailers. [2] X Research source

• Writing a business plan can be the most complicated part of starting a small business. For more information, see how to write a business plan for a small business .

• For an example of how much costs can vary, two successful business in different markets started with $700 and $1.5 million, respectively. The first, a tie company, started with such a small amount because the business was run from home, started with low inventory costs, and didn't require any equipment to manage. The second, a fine wine retailer, had expensive product to buy, had to rent a large warehouse, and had high operating expenses like temperature-controlling the warehouse and investing in equipment to transport the product around the warehouse and to customers. [5] X Research source
• The advent of online distribution has also created new options for distribution businesses. One of these, drop-shipping, allows for distributors to avoid all inventory control and shipping issues by never taking physical possession of the product. Never taking control of inventory means that your initial investment can be much lower. However, this a crowded market that can be difficult to make money in. See how to start a drop shipping business for more information.

• As part of selling, put together a marketing plan so that you can promote your services. This may include the costs of printing brochures, creating catalogues detailing your offerings, and placing ads in trade journals or magazines. As a small business, you can expect to do a lot of marketing for the first few years until you have a good-sized customer base and have established a reputation. See how to create a marketing plan for more information.

Getting Your Business Started

• The primary advantage of forming a company is that your finances will be legally separated from those of your company. This minimizes risk to you in the event that your business is sued or goes into bankruptcy.

• It is conceivable that a successful distribution business could be built and run from your home. This depends on the physical size of your inventory, however.

• Don't buy too much inventory, especially at first.
• Try to estimate your customer's needs before you invest in inventory.
• If you can get away with low overhead (storing items at home or at a cheap location) at first, go for it.
• Purchase inventory to a point where you can sell that inventory before you have to pay the manufacturer or distributor for it. [9] X Research source

• You can also invest in search engine optimization (SEO) that directs potential customers directly to your website by placing it higher in search engine results. See how to improve search engine optimization for more information.

Tyrone Showers

Use RSS feeds to engage with loyal fans. While usage has declined, RSS feeds are still a valuable tool to send updates directly to users' feed readers, bypassing crowded inboxes and social media algorithms. Promote your RSS feed in blog posts and social media bios to keep your dedicated audience informed.

Community Q&A

• Distribution is all about covering the spread, or making sure that you charge enough for your products to cover your cost in buying them and your operating expenses with a bit left over for you to keep as profit. A good model in determining your prices is to copy the markup used by the manufacturer. For example, if they produce as a product for $5 and sell it to you for $10 (a 100% markup), you should sell the product for $20 (a 100% markup from $10). This, of course, is only a general guideline. [10] X Research source What you end up charging for your product will also depend on your market and your competitor's prices. Thanks Helpful 1 Not Helpful 0

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• ↑ http://www.entrepreneur.com/article/190460
• ↑ Art Lewin. Entrepreneur. Expert Interview. 11 June 2021.

About This Article

To start a distribution business, contact your local Small Business Administration to help your company get licensed and registered. Then, you'll need to find a location where you can run your business. To keep your costs low, rent the smallest location you can, or work from home if your inventory is limited. To start getting inventory, contact the National Association of Wholesaler-Distributors. Once you are ready to make sales, develop a website and catalog so that you can market and sell your products. For information about developing a business plan, keep reading! Did this summary help you? Yes No

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Distribution Channel Strategy: Your Go-To Guide (Infographic)

Say you have a great product or service that meets a pressing need.

That’s all well and good — but a million-dollar idea has no path to becoming a million-dollar revenue-generator if you can’t get your products or services in front of consumers and your target market. This is where distribution channel strategies come into play to offer solutions.

A well-planned distribution channel strategy is specifically designed to increase the sales of your products or services as they enter the market. At the end of the day, the fundamental problem most businesses face is not how to develop the product or service, but how to market and sell it to the public.

It may seem easy in the age of e-commerce and social media, but without a defined distribution channel strategy, you stand less of a chance of reaching consumers or making an impact with your target audiences.

Let’s explore the finer points of crafting a distribution channel strategy, the benefits of various channels and what you can do to fine-tune your approach.

What Is a Distribution Channel Strategy?

Fundamentally, distribution is the process of getting a product or service in front of the end consumer. The buying and selling of goods and services may appear fairly simple and linear, but it never is. Distribution is a multifaceted affair that requires strategy and partners.

There are different levels of distribution, including direct and indirect channels. The more intermediaries, the more levels. A zero-level channel would entail a producer selling directly to end customers, whereas a three-level channel includes selling to a distributor and then a retailer before reaching end users.

Consider all the hands a smartphone passes through before reaching the end consumer. Not only is the manufacturer involved, but also potentially a wholesaler, retailer, broker agent or another entity.

There are two basic types of distribution channels:

• Direct: Consumers buy the product or service directly from your business, whether through a physical storefront or an e-commerce website.
• Indirect: Consumers buy the product or service through an intermediary, like a big-box retailer you have distribution agreements with or a broker agent you partner with.

Channels can also be defined as short or long. A short channel involves the fewest steps possible between producer and customer, like with direct marketing . A long channel includes other intermediaries like wholesalers and retailers.

Distribution Channel Strategy vs. Supply Chain Management

An important distinction to make is that channel distribution strategy does not equal supply chain management. Supply chain management involves the sourcing and routing of materials and products through the manufacturing and distribution processes. Channel distribution is often the final stage of the chain —– delivering final products to end users.

Channel distribution is solely about getting your product to the market, whereas supply chain management relates to sourcing the parts or materials that make your product as well as delivering final products to where they need to be.

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How to Develop a Distribution Channel Strategy

When crafting your distribution channel strategy, it is imperative to include a comprehensive plan on how to reconcile your inventory , ensuring seamless management of stock levels to meet customer demands and avoid potential issues such as overstocking or stockouts, ask yourself the following three questions to understand your needs, capacity, limitations and goals:

1. How Do Our Potential Customers Find Us and Our Products and/or Services?

The channels your potential customers use to find you will naturally point toward the channels to target in your distribution strategy. You need to  plan your demand  better, so analyze how social media, search engines, direct marketing, partner sales, industry recommendations and other channels perform in generating customers.

Customers of a millennial beauty products company will have a much different purchasing path than a B2B buyer of network infrastructure. Identifying your main channels is a bit like looking at the channels with your highest level of brand awareness, and then fitting your strategy to maximize performance in those channels.

2. What Is Our Scale and Size?

One reason why long channels exist is that not every business has the relationships or expertise to handle logistics. An energy drink company might develop a new formula that tests great with consumers but lacks the means to ship the product to nutrition stores nationally. That’s where relationships with distributors, wholesalers and retailers become a competitive advantage, and sometimes a necessity.

Distributors can fulfill orders for whole pallets of energy drinks, while wholesalers can find retail buyers to get the product in stores. Established businesses that benefit from enterprise-scale are often able to condense channels or acquire or integrate horizontal business units to take care of logistics and other distribution needs.

3. What Future Business Goals Do We Have?

Always be prepared for new channels.

If your aim is to expand into a new market or territory, determining your channel strategy is an integral part of defining your over go-to-market strategy . If you have no relationships with a regional retailer, your product launch may suffer when trying to grow in that locality. Channel partners, however, can be leveraged to efficiently scale up and expand.

On the other hand, opening up more direct channels may be your best option for increasing brand awareness or profit per sale. Long channels mean higher costs and more cooks in the kitchen; a direct channel can lead to a better customer experience or brand impression.

Distribution Channel Types

While direct channels of distribution may seem like the obvious choice, they are not always the right option or even a possibility. Companies in several industries have to comply with various regulations that govern how products and services reach consumers, such as those in finance, food and beverage or medical devices.

Let’s explore some of the most common channels and how to judge whether they are right for your marketing mix:

Need a way to reach more consumers? Placement in a retail store is your best bet for broadening your customer base. But you can’t just walk up to the nearest Walmart or Target and ask for them to feature your product on their shelves. Retailers buy from distributors and wholesalers, meaning you’ll need to pursue longer channels.

However, regional or local chains may be more willing to negotiate on a personal basis — i.e., buying inventory straight from you or your manufacturer. Retail is clearly best for companies that sell physical goods, but just be aware that competition will be high. If you go with a big-box chain, you might be going up against the biggest brand names in the industry. Retailers won’t work repeatedly with businesses that don’t perform.

Direct Marketing

Want to cut out the middlemen and reach out to consumers yourself? A direct marketing campaign can help connect you with potential customers, as well as provide them the means to make a purchase directly. Such channel strategies often manifest as product catalogs, marketing calls, emails or face-to-face sales. While direct channels mean greater engagement and profit, they also require more resources and effort from the brand to manage direct marketing.

Dealer Network

Don’t have an especially large or skilled sales force? You can essentially outsource those functions to a network of dealers, brokers and agents who do the selling for you. This arrangement is particularly advantageous if you have a specialized product or lack deep industry connections.

Insurance companies, for example, often rely on a vast network of brokers to find customers and sell them policies offered by the business. A dealer network still needs support, however, as you’ll need to provide agents with literature, marketing collateral and other resources. You’ll also need to negotiate commissions and fees.

Website Store

The advent of the internet age has opened up a whole new channel for B2C and B2B brands alike, as well as large and small companies. Startups without channel relationships can sell directly to consumers through inbound marketing, cultivating brand loyalty and lowering their go-to-market costs.

Meanwhile, established companies can open up new revenue streams with a website store that long-time brand evangelists can use. Highlighting your website store through messaging, content and social media can help supercharge your marketing. For instance, without the cost of a long channel, you may be able to offer special discounts or promotions on sales that can be traced from a Facebook or Twitter link.

Wholesale Distribution

Long channels of distribution are not innately bad. In fact, they can deliver tangible competitive advantages when working with the right wholesale or distribution partners. What’s the difference? Distributors are basically wholesalers that offer a greater scope of services.

Wholesalers will purchase and resell your goods in bulk, fulfilling orders to retailers — distributors do all that and more as an effective sales agent of the company. Wholesalers are in it for their own business and margins, whereas distributors work much more closely on a strategic level. Both can help lift your brand’s profile and sales.

E-Commerce Site

Online markets like Amazon, Zappos and Etsy have become go-to channels for sellers of physical goods. Merchants can leverage the established base of online customers as well as marketplace tools, allowing them to reach end users with high intent. E-commerce sites operate in a different way than direct online stores, so you’ll want to ensure your ads and product pages are branded in a way that fosters a consistent customer experience.

Value-Add Resellers

VARs, as they’re called, buy inventory from companies, and then make upgrades or package it with their own services. The symbiotic relationship can help you meet goals like expanding your footprint or securing recurring revenue from a VAR buyer. This exclusive channel of distribution works particularly well for companies that have a specialized product, as it’s not about casting the widest net.

What Is the Right Mix of Channels?

In reality, most businesses will employ a multi-channel marketing mix that makes use of both direct and indirect channels, when available to them. The same craft brewery that has to work with distributors, wholesalers and retailers can also sell to customers directly at an on-site taproom. Even agricultural producers can sell at farmer’s markets in addition to working with distributors that get fresh produce to the groceries across the nation.

When sitting down to hammer out a distribution strategy, always be open to the different combinations that can be made with direct and indirect channels. However, just be sure that conflicts will not arise. Retailers may have certain stipulations for working with them, as other intermediaries would. Also be sure to not spread yourself too thin, especially if you’re just starting out. If you introduce new channels into your mix, devise a plan that gradually integrates them, and sets standards and expectations for performance and costs.

Keep all this in mind when developing your strategy. But always be aware that unique factors like the industry in which you operate will be influential to your decision-making.

Editor’s Note: Updated June 2022.

Adriana Sandoval

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5 Essential Steps for Developing a Winning Distribution Plan

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Introduction

Understanding distribution plans and how to develop them is paramount to the success of any business.

A distribution plan is a strategy that determines how, when and where a company product will be sold to their customers. This plan indicates who, what, where and how products are purchased and delivered. It encompasses product promotion, pricing strategies, delivery methods, stock control and even customer service.

Planning and designing a successful distribution plan can be key to the profitable growth of a business. For example, if a retail company identifies a niche market they can use this knowledge to tailor their product offering and delivery methods.

Assets Needed for a Distribution Plan

Designing an effective product distribution strategy requires research, analysis, and an understanding of the various steps and resources needed to implement it. In order to create a comprehensive distribution plan, businesses need to assess the assets required to successfully execute. To get started, a business needs data that includes information about its product or service and an understanding of the customer demographics and demand. Finally, the business needs to identify the best distribution channels, taking into account factors such as cost, ease of use, and potential for growth.

Data on Your Product Type

When creating your distribution plan, the first step is to assemble relevant data and insights about your product type. This should include information such as customer preferences, the competition’s network and channel strategies, current trends in the industry, and customer feedback. Gathering this data will enable you to determine the best strategies for marketing and distribution.

Analyzing Customer Demographics and Demand

The next step is to research customer demographics. Understanding your customers is critical for any successful product launch, so ask yourself questions such as who is likely to be interested in the product and why. Knowing customer information such as age, gender, location, preferences, purchasing power, and interests can help you develop a more targeted distribution plan. Additionally, analyzing customer demand is important because levels of demand can determine which distribution channels are best for the product.

Identifying Best Potential Distribution Channels

Once you have a better understanding of customer demographics and demand, you can begin identifying the most suitable distribution channels for your product. Consider criteria such as cost, ease of access, time to market, scalability, and customer convenience. Additionally, it is important to research the various distribution centers in order to understand their capabilities and identify any obstacles or limitations. Once you have completed this research and identified the best potential channels, you can begin developing a plan that works for your business.

3. Planning Out Your Supply Chain

Creating a logistical plan for your business’s distribution needs begins with an analysis of what your target market's needs are, and how these needs can be met in the most cost-effective and efficient manner. All of this takes place within the framework of any associated legal restrictions, so the planning and implementation process of your distribution should cover the following points:

a. Consider any legal restrictions related to your business

Depending on where your business operates, there may be local, state, and federal laws that govern your business operations. Additionally, factors such as taxes, permits, currency regulations and tariff regulations must be taken into account. Having a legal advisor during the in-depth planning process of your distribution plan is essential for ensuring that you are complying with all applicable laws and regulations.

b. Selecting the most cost-effective supplier and routes

Once the legal framework around your business has been established, your next step is to select the appropriate supplier for the type of product(s) you are selling. Researching multiple options and engaging in a competitive bidding process can help you get the best quality product at the lowest price. Additionally, consider whether outsourcing your production requirements is a viable option. If that’s the case, researching outsource providers and cost analysis should be part of this process. Finally, your routes selection should take into consideration the most efficient ways of transporting goods from purchase origin to delivery destination.

c. Prioritizing on-time delivery

Timely delivery of goods is essential to any business, especially those offering minimum lead times for customers. It is important to consider delay possibilities resulting from bad weather, missed delivery targets, labor strikes, and other liabilities. Additionally, having backup plans for emergency scenarios helps minimize any potential disruptions in the supply chain. Make sure to consider all of the steps in the distribution process and plan accordingly with contingencies in place for any eventuality.

Once the distribution plan and the logistical layout has been properly established, the underlying technology and tools must be implemented. Data-driven tools, AI-based applications, and predictive analytics all help with optimizing the supply chain operations, helping to improve the efficiency of the distribution process.

Devising a Plan for Reaching Customers

A distribution plan is a vital operation for any business. It not only decides what customer your business will be targeting but also establishes the price and discounts that your business offers. A comprehensive and well-devised distribution plan is essential to increase the reach of your business and generate sales.

Decide between direct-to-consumer or distributor

The first step in devising a distribution plan for your business is to decide whether you want to sell your product directly to consumers or through distributors. If you choose to use distributors, you can expand your customer network and give yourself more flexibility to create numerous pricing models and discounts. Additionally, you can benefit from the existing customer networks that distributors already have.

Establish pricing and discounts for channels

Once you have decided whether to implement a direct-to-consumer or distributor model, you need to decide on pricing and discounts for each channel. This will enable you to maximize profits while also gaining customer loyalty. You must also decide whether or not you offer the same discounts to each channel or tailor the discounts to different types of customers. Furthermore, it is essential to keep track of pricing in different channels and stay competitive in the market.

Researching and selecting suitable channels for your business

Finding the right channel for your business is critically important. Research different channels available to identify which one suits your target market and budget. You should also consider factors such as the return policy of the channel, their shipping services, the speed of delivery, the needed technology and the customer service offered. Once you have done the research, you can narrow down the available channels to pick the one that best meets your goals.

To conclude, designing a distribution plan for your business requires research and understanding of the customer networks. Deciding between a direct-to-consumer or distributor model, establishing pricing and discounts, and researching and selecting suitable channels for your business are all important aspects of devising a successful distribution plan.

Creating a Comprehensive Distribution Plan

When creating a distribution plan for your business, the focus should be on constructing a plan that will ensure the successful growth of your business while also ensuring the smooth functioning of all the associated activities. Having a detailed plan that takes into consideration all aspects of your distribution strategy will be crucial in the long run, providing you with clear guidance and expectations to foster growth and enable effective planning.

Assign Roles and Responsibilities for Each Team within the Business

In order to ensure the success of the distribution plan, it is essential to assign roles and responsibilities that clearly defines each team’s roles within the plan. This will assist in understanding who is responsible for which tasks, allowing for clear communication and smoother execution of the plan. It is important to set clear expectations for each team member’s roles and the goals that need to be achieved by each team within the plan.

Set Clear Timelines and Performance Metrics

Establishing clear timelines and performance metrics will be critical in setting expectations for both teams and individual workers. This will help ensure that milestones for the plan are met on time, with benchmarks used to measure progress and assess how expectations are being met. Doing this will help keep the plan on track, helping to stay ahead of any potential delays and having a reliable plan to return to if needed.

Define How to Manage Adjustments and Changes in the Plan

As the business grows, it is likely that the plan will need to be adjusted to reflect recent changes or take into consideration new objectives that have been set. Preparing for how to manage adjustments and changes in the plan will be needed to ensure the plan remains up-to-date. Anticipating how changes may occur and defining a process for making these alterations to the plan will help ensure that the strategy stays relevant and that any issues are efficiently dealt with.

Monitoring and Refining the Distribution Plan

Once the distribution plan is in place, it is important to track its performance on an ongoing basis. On-going monitoring of the plan provides important insights on how effectively it is meeting desired goals. Depending on the scale of the business, this may be tracked by an external firm or kept intenally by a designated team.

Track Performance of Each Stage of the Distribution Chain

Tracking performance of each stage in the distribution chain helps you identify inefficiencies and identify where investments are needed for improvement. It also helps you understand how different strategies and tactics are working in reality, so that you can make adjustments accordingly. Aspects to monitor include delivery time, order accuracy, inventory issues, returns and customer satisfaction.

Assess Whether Your Plan Is Meeting Desired Goals

To ensure that your distribution plan is working well, it is important to assess whether the desired goals and objectives you had initially planned for have been met. This helps measure success and gives you a better understanding of how to adjust the plan, if required.

Update the Plan as Needed To Ensure the Continued Success of Your Business

On the basis of the results from your assessments, it is important to refine the plan and make changes to ensure the continued success of your business. This could involve upgrading existing technologies, adding new partners in the chain or changing tactics to better optimize the plan. It is crucial to remain agile and adaptable for a successful and sustainable distribution strategy, as the market environment is ever changing.

Creating a successful distribution plan for your business is essential for its ongoing growth and profitability. A well-designed plan will ensure your product or service reaches consumer markets effectively, cutting costs and increasing customer satisfaction. By investing in your distribution plan, you can bring a competitive edge to your business and remain successful in the long run.

To keep your distribution plan effective, it is important to review it regularly. This will help you evaluate how well the current plan is performing against your goals and identify areas for improvement. By identifying and optimizing any existing gaps in the system, you can take advantage of new opportunities, use insights to boost your competitive advantage, and make changes to keep up with shifting market demands.

Finally, it is important to partner with reliable, reputable distributors and suppliers to ensure the smooth flow of goods throughout the supply chain. Establishing strong relationships with these partners will help you to further optimize your distribution plan, ensuring that your product or service is reaching the highest potential in delivery and customer satisfaction.

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• Hospitality Industry
• What is a distribution strategy?

Q : What is a distribution strategy?

The ways in which businesses get their products and services to customers continue to rapidly evolve. An effective distribution strategy is critical for any business looking to get its products or services to customers efficiently. With 91% of companies reporting their distribution strategy as a key factor impacting overall performance, defining the right strategy for your business has never been more important. An effective strategy considers factors like customer demographics, buying journeys, and emerging booking platforms.

In this comprehensive guide, we'll cover everything you need to know about distribution strategies.

By the end, you will know what a distribution strategy is and have the knowledge to create an optimized distribution approach to maximize reach, boost revenue, and enhance the customer experience.

What is distribution strategy?

A distribution strategy refers to the methods and channels a company uses to deliver its products or services from the point of production to the end consumer. The overarching goal is to move inventory as efficiently as possible while delivering the best possible customer experience.

Distribution strategies encompass the channels, outlets, and intermediaries utilized to physically transport goods along the supply chain. They also incorporate digital components like e-commerce platforms where transactions occur.

An effective distribution strategy aligns with a company's target audience, business model, product offerings, and growth objectives. It encompasses every touchpoint along the path to purchase - how inventory gets stored, processed, transported, tracked, and sold.

In 2022, global spend on distribution services reached over $2 trillion , highlighting the massive scale and importance of optimizing distribution operations.

Why is a distribution strategy important?

There are several key reasons why defining and optimizing your distribution strategy is essential:

• Increased efficiency and cost savings: The right distribution model minimizes unnecessary steps in the supply chain, eliminates waste, and consolidates processes for significant cost savings. Efficient routes and channels allow businesses to get products to market faster. Inventory tracking provides visibility to optimize production schedules. Shared distribution centers with partners streamline operations.
• Improved customer experience: Seamless omni-channel distribution creates a unified brand experience for customers across all touchpoints, whether online or offline. Fast, reliable fulfillment with transparent tracking improves satisfaction. Options for in-store pickup or returns enhance convenience.
• Expanded market reach & revenue growth: Unique distribution strategies help businesses access new geographical territories, demographics, and partnerships. Multi-channel distribution provides more opportunities to promote products and generate sales across different platforms. The resulting boost in market share directly translates to higher revenues.

Well-designed distribution strategies that align with customer preferences and business capabilities drive key benefits for organizations not limited to those listed above.

What's new in distribution strategies?

Several evolving factors now shape distribution strategies, including:

• Rise of e-commerce and omnichannel retail: Online shopping continues its meteoric rise, with e-commerce sales expected to reach $7.4 trillion globally by 2025 , representing nearly 22% of total retail sales according to Statista.

Leading omnichannel retailers seamlessly integrate online and brick-and-mortar channels to give customers ultimate choice and convenience. Many purely digital brands also now open physical locations to create immersive branded experiences.

• Sustainability priorities: Consumers and governments alike prioritize sustainability , from eco-friendly shipping materials to reduced carbon emissions. Brands increasingly track and report on sustainability metrics while optimizing logistics for green operations.
• Advanced supply chain technology: Innovations like blockchain, AI, robotics, and self-driving vehicles enable unprecedented supply chain transparency, efficiency, and flexibility.
• Faster fulfillment: Customer expectations for rapid delivery rise by the day. Cutting-edge companies implement systems for one-day, same-day, or even one-hour shipping by leveraging distribution centers in urban areas.

Types of distribution strategies

Businesses design distribution strategies by selecting among several fundamental types:

1. Direct distribution

Selling directly to the end consumer through owned e-commerce channels. Examples include company websites, mobile apps, brick-and-mortar locations, pop-up shops, or catalog/TV sales.

This is the strategy where a customer books a hotel room directly through your hotel website. This tends to happen with loyal customers who know your hotel well and are returning.

2. Indirect distribution

Selling through third-party resellers or intermediaries. Examples include retailers, distributors, wholesalers, and online marketplaces like Amazon or restaurant delivery platforms.

This is a long distribution channel with numerous layers. There could be various third parties between the customer and your hotel. For example, a leisure traveler's distribution channel may go through a wholesaler and a tour operator, or an online travel agency and an affiliate online travel agency. A business traveler's channel may include a DHISCO switch, a global distribution system, and a corporate self-booking channel.

3. Intensive distribution

Intensive distribution focuses on high availability above all else. Products display through every possible sales channel from big box stores to independent shops. High ubiquity suits low-cost impulse purchases.

Candy bars, snacks, soft drinks, and daily newspapers commonly utilize intensive distribution at convenient locations like supermarkets, newsstands, convenience stores, and pharmacies. Hospitality examples include pamphlet racks showcasing local attractions in hotel lobbies.

4. Selective distribution

Selective distribution strikes a balance between intensive and exclusive distribution. It places goods in multiple sales venues but exercises control over specific retailers and locations to align with brand positioning.

Selective distribution works well for mid-range fashion apparel labels only carried by department stores also selling similar moderately-priced merchandise. Boutique hotels may choose selective strategies partnering with independent and niche travel agencies resonating with their unique value proposition over mass-market players.

5. Exclusive distribution

Exclusive distribution strictly limits sales channels, typically to a single outlet. The severe constraints on product access enhance perceptions of prestige and reinforce premium pricing.

Ultra-high-end fashion houses only sell the latest designer collections through their flagship boutiques in fashion capitals around the world. Small luxury hotels may choose to exclusively sell suites and villas solely through their on-site reservation team to provide white-glove service.

6. Hybrid distribution

Many leading companies employ hybrid distribution encompassing multiple strategies to serve diverse target customer groups.

A luggage brand may use exclusive distribution for its luxury bespoke line only available in its stores. The mid-tier line appeals through national chains and independent luggage shops reflecting a selective model. Entry-level products are displayed via intensive distribution in big box retailers maximizing market reach.

7. Dual distribution

Dual distribution combines direct and wholesale approaches. Companies build retailer partnerships while also operating their brick-and-mortar locations and e-commerce storefronts.

Athletic shoemaker On Running opened its first On Experience Shop in 2021 and continues expanding its corporate retail presence. At the same time, they expanded U.S. wholesaler coverage by over 25% to extend availability. Dual distribution allows direct-to-consumer brand control while leveraging wholesaler infrastructure.

8. Omnichannel distribution

Omnichannel distribution seamlessly blends online and offline routes to put the right products where customers want them.

Beauty giant Sephora provides a prime example spanning over 2,700 retail locations, e-commerce storefronts, social shopping integrations, mobile app features, and in-store digital experiences. Regardless of channel, customers access the same selection with consistent promotions as part of their top-ranked loyalty program. Sephora also leverages distribution for sustainability through eco-packaging and fair labor certification initiatives.

9. Reverse distribution

While less common, reverse distribution continues growing as companies accept product returns, recycling, and refurbishment channels.

Outdoor apparel maker Patagonia operates the largest garment repair facility in North America. Customers can mail back damaged products from anywhere for free repairs extending useful product life, thus reducing environmental impacts.

Key distribution strategy components

With the landscape evolving, best-in-class distribution strategies now incorporate:

• Omnichannel presence
• Hyperlocal delivery options
• Heavy focus on sustainability
• High-tech supply chain innovations
• Premium customer experience

Let's explore each area more deeply.

1. Omnichannel presence

Leading companies meet customers everywhere they shop, both online and offline. Key omnichannel components include:

• E-commerce website and mobile apps
• Owned brick-and-mortar locations
• External brick-and-mortar partners
• Social commerce integrations

They unite these channels through shared inventory, universal pricing, omnichannel promotions, and top-notch post-purchase customer service.

Starbucks demonstrates omnichannel excellence across pickup, delivery, brick-and-mortar, and drive-thru options. Customers place orders online for in-store pickup or delivery and earn Stars loyalty points they can redeem across channels.

2. Hyperlocal delivery

On-demand delivery gains immense traction, with a full 50% of customers expecting 2-hour shipping availability according to a Walker Sands study.

Leaders now offer customers multiple ultra-fast delivery options, enabled by hyperlocal infrastructure:

• Micro-fulfillment centers in urban areas
• Dark stores solely for digital order fulfillment
• Partnerships with on-demand and gig delivery companies
• Utilization of smart lockers and in-store pickup
• Autonomous robots and vehicles for last-mile transportation

For example, Target recently announced plans to expand the number of sortation centers dedicated to online order fulfillment. By siting facilities closer to population centers, routine purchases can rapidly reach local customers.

3. Sustainable distribution

With sustainability driving consumer purchasing , manufacturers must minimize environmental impacts at every link along distribution channels.

• Optimizing modes and routes cuts carbon emissions from transportation. Electric vehicles increasingly transfer goods between hubs.
• Packaging materials shift toward renewables like plant fibers in place of plastics. Containers make use of recycled materials.
• Facilities implement eco-friendly waste, water, and energy systems. Solar panels, for example, power warehouses and fulfillment centers.
• Companies track and share data on sustainability KPIs with consumers and governments seeking quantitative insights.
• UK food delivery service Deliveroo details strong sustainable distribution commitments like becoming the first carbon-neutral delivery company globally.

4. Advanced supply chain technology

Technology unlocks game-changing supply chain advancements:

• Internet of Things (IoT) sensors enable real-time visibility into inventory levels, product locations, and transportation conditions to optimize planning.
• Artificial intelligence predicts spikes in demand to align production, inventory, and delivery capacity.
• Blockchain establishes trusted, transparent records of exchanges across end-to-end distribution.
• Autonomous warehouse robots pick, pack, and sort items faster and more accurately.
• Machine learning optimizes delivery routes and models projected arrival times.

Fashion label Guess incorporates RFID sensors into clothing tags to continuously track goods flowing through its highly automated distribution centers.

5. Premium customer experiences

With expanded access to products, customer experience now determines buyer loyalty. Elements include:

• User-friendly e-commerce sites and apps offering intuitive navigation, rich product information like 3D images, virtual try-on tools, and easy checkout
• In-store experiences that entertain or educate while allowing customers to personally test products
• Top-notch post-purchase customer service and streamlined returns processes
• Value-added services like alteration support and virtual interior design consultations
• Loyalty programs providing personalized recommendations and perks

Athletic footwear retailer GOAT provides premier user experiences online and in person. Their mobile app and website simplify browsing massive product selection and ordering high-demand sneaker styles. Brick-and-mortar GOAT Select stores in top markets also allow customers to see hot releases up close while checking out other exclusive adult and kids' apparel.

Here are some secrets to help you decode customer delight.

Hotel distribution strategy elements

While distribution strategies apply across industries, hotels possess some unique considerations given the experiential nature of the product.

Key elements of hotel distribution include:

Direct bookings: Travelers who book directly through hotel websites and loyalty apps typically offer higher lifetime value thanks to valuable first-party guest data capture, opportunities for personalized marketing, and excluded third-party commissions.

Global distribution systems: Large Global Distribution Systems (GDSs) like Sabre, Travelport, and Amadeus provide listings visible to millions of travel agents. Given its substantial subscriber base, GDS's presence remains essential for capturing bookings.

Online travel agencies: Expedia, Booking.com, TripAdvisor, and scores of other OTAs steer massive transaction volumes to hoteliers. However, commission fees ranging from 15-30% significantly erode net revenue. Large hotels increasingly encourage direct bookings over OTA usage to improve profit per stay.

Metasearch engines: Metasearch sites like Trivago, Kayak, and TripAdvisor's hotel search function allow users to view rates across multiple booking sites. The model earns metasearch companies' pay-per-click fees from hotels and OTAs. While beneficial for shoppers, metasearch further dilutes commissions.

Select alternative accommodations platforms: To expand market reach, some hotel brands list rooms on daily rental platforms like Airbnb that enable access to leisure and long-staying travelers. They may promote a limited inventory of apartment-style suites not cannibalizing traditional room bookings.

Optimizing hotel distribution requires balancing channels to capture high-value bookings while minimizing customer acquisition costs. An omnichannel presence creates multiple booking avenues while incentives encourage direct reservations.

Sustainable lodging distribution: Hotel distribution strategies also now address sustainability values held by modern travelers. Initiatives include:

• Partnerships with eco-conscious rideshare services, tour providers, and attraction vendors
• Promotion of location walkability, public transit access, and on-site electric vehicle charging
• Messaging on internal sustainability practices like water and energy conservation, waste reduction, and community engagement

Who are the actors of distribution strategy?

There can be many actors within a hotel distribution strategy. These include your hotel website for direct bookings, global distribution systems, and online travel agents and metasearch. The size of the distribution channel and number of actors involved can vary with the type of strategy.

Hotel distribution helps you create a method for selling hotel rooms , which you determine by analyzing costs of each distribution channel for selling hotel rooms. Finding the right distribution channels and choosing the most cost-effective ones at high-demand times will help you determine when to sell rooms and through which channels to improve profits. Nonetheless, cost is not the only factor. You may also consider the type of hotel, your customer base and where your base tends to book hotel rooms.

The innovator's edge in hospitality distribution

True innovation combines digital capabilities with human insight. As omnichannel models evolve, hospitality leaders should remain fixated on understanding customer needs and desires to provide meaningful value.

Those who leverage technology to forge emotional connections, deliver personalization, and ignite passion for their brands will surely thrive in the years ahead.

Future success goes to bold organizations that reimagine distribution with the guest at the center.

Stay ahead of the curve

Distribution channels and technologies will continue advancing exponentially in the coming years. Companies must actively track emergent innovations while doubling down on digital capabilities and sustainable practices customers increasingly demand.

To stay ahead of the curve, ask yourself these key questions:

• How can technology be intelligently integrated across channels to enable seamless guest experiences?
• Where are potential friction points in getting offerings to patrons in hospitality settings?
• How can partnerships enhance market exposure and order fulfillment speed?
• What smart logistic adjustments ensure reliable, environmentally sound delivery?
• How might virtual and augmented reality enhance guest connections in their journey?

When you start to answer these questions in relation to your hospitality business you will uncover some opportunities to get ahead of the curve by enhancing your distribution strategy and increasing your revenue.

Consultant at EHL Advisory Services

Keep reading

Why hospitality businesses win by putting people first - A mindset shift

May 17, 2024

Guest experiences: Importance of emotional engagement and culture

May 15, 2024

Creating memorable guest experiences: Personalization with storytelling

May 08, 2024

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Distribution Business

Back to All Business Ideas

How to Start a Distribution Business

Written by: Natalie Fell

Natalie is a business writer with experience in operations, HR, and training & development within the software, healthcare, and financial services sectors.

Edited by: David Lepeska

David has been writing and learning about business, finance and globalization for a quarter-century, starting with a small New York consulting firm in the 1990s.

Published on June 17, 2022 Updated on May 24, 2024

Investment range

$3,700-$9,800

Revenue potential

$50,000-$150,000 p.a.

Time to build

Profit potential

$43,000-$105,000 p.a.

Industry trend

Retailers all over the world rely on distributors to provide them with high-quality products. From cosmetics to clothing, distribution partners help big companies behind the scenes by procuring goods from manufacturers, and make significant profits from selling those goods at a competitive markup. After years of steady growth, the US wholesale industry is worth trillions, while the global market is expected to expand nearly 10% annually through 2026.

But before you start ordering items in bulk, you’ll need to learn what it takes to launch your distribution business. Luckily, this step-by-step guide contains the entrepreneurial insight and information you’ll need to get your business started and pointed toward success. 

Looking to register your business? A limited liability company (LLC) is the best legal structure for new businesses because it is fast and simple.

Form your business immediately using ZenBusiness LLC formation service or hire one of the Best LLC Services .

Step 1: Decide if the Business Is Right for You

Pros and cons.

Before starting a distribution business, it’s important to consider the pros and cons.

• Flexibility – Set your own working hours
• Good Money – Markup prices as much as 30%
• Provide Value – Help retailers sell great products
• Stiff Competition – Wholesale distribution is a crowded market
• Tough Customers – Deal with demanding retail customers

Distribution and wholesale industry trends

Industry size and growth.

• Industry size and past growth – The US wholesale trade market is worth $10.5 trillion in 2022 after growing 3.8% annually since 2017.(( https://www.ibisworld.com/industry-statistics/market-size/wholesale-trade-united-states/ ))
• Growth forecast – The global retail and wholesale market is expected to grow 9.5% annually through 2026.(( https://www.globenewswire.com/en/news-release/2022/06/01/2453860/0/en/Retail-And-Wholesale-Global-Market-Report-2022.html ))
• Number of businesses – In 2022, 716,035 wholesale trade businesses operated in the US.(( https://www.ibisworld.com/industry-statistics/number-of-businesses/wholesale-trade-united-states/ ))
• Number of people employed – In 2022, US wholesale trade businesses employed 6,705,023 people.(( https://www.ibisworld.com/industry-statistics/employment/wholesale-trade-united-states/ ))

Trends and challenges

Trends within the distribution industry include:

• Health and wellness supplements, like ashwagandha and matcha tea, have become some of the most lucrative products for distribution businesses. 
• Technological advancements have brought increased automation to distribution. Companies are now able to track stock levels and manage logistics in real time.

Challenges within the distribution industry include:

• Retail customers can be extremely demanding, especially when it comes to shipping. As a distributor, you’re responsible for making sure customers get their products on time, which can be tough to manage when procuring products from overseas.
• Large, big-box retailers like Costco are removing the middleman completely and buying directly from manufacturers. Offering services that manufacturers do not provide like inventory management can help wholesale distributors stay competitive.

What kind of people work in distribution?

• Gender – 17% of distribution managers in the US are female, while 83% are male.(( https://www.zippia.com/distribution-manager-jobs/demographics/ ))
• Average level of education – The average distribution manager has obtained a bachelor’s degree.
• Average age – The average distribution manager in the US is 46 years old.

How much does it cost to start a distribution business?

Startup costs for a distribution business range from $3,700 to $9,800. Main costs include a computer, a website, distribution software, and marketing expenses. If you decide to purchase or lease a warehouse to store inventory, costs will be much higher. 

Many wholesaler distributors make great money selling products on ecommerce platforms like Amazon. If you’re interested in learning more, sites like Udemy offer online courses for under $100 that can be completed in just a few hours. 

You’ll need a handful of items to successfully launch your distribution business, including:

How much can you earn from a distribution business?

The average markup on wholesale products is 25%, and the pricing of your items will vary greatly depending on which products you sell. After factoring in operating costs, expect a profit margin of around 85%.

If you choose to run a distribution business that sells smartphone accessories, you could purchase them from a supplier at $10 a piece and sell them to retail customers at a 25% markup for $12.50. In your first year or two, you could work out of your home and sell 20,000 units per year, bringing in $50,000 in annual revenue. This would mean $43,000 in profit, assuming that 85% margin. 

As your business grows, sales could climb to 50,000 units a year as you increase your markup to 30%. At this stage, you would hire additional staff, reducing your profit margin to around 70%. With annual revenue of $150,000, you’d make a handsome profit of $105,000.

Use our markup calculator to calculate your sale price and how much revenue and profit you will earn with different markup percentages.

What barriers to entry are there?

There are a few barriers to entry when it comes to starting a distribution business. Your biggest hurdles will be:

• Competition from other distributors
• Finding reliable, high-quality manufacturers

Related Business Ideas

How to Start a Packaging Business

How to Start a Warehouse Business

How to Start a Franchise

Step 2: hone your idea.

Now that you know what’s involved in starting a distribution business, it’s a good idea to hone your concept in preparation to enter a competitive market. 

Market research will give you the upper hand, even if you’re already positive that you have a perfect product or service. Conducting market research is important, because it can help you understand your customers better, who your competitors are, and your business landscape.

Why? Identify an opportunity

Research distribution businesses in your area to examine their products, price points, and what sells best. You’re looking for a market gap to fill. For instance, maybe the local market is missing a wholesale distributor that offers custom branded packaging services.

You might consider targeting a niche market by specializing in a certain aspect of your industry, such as cosmetics or educational materials.

This could jumpstart your word-of-mouth marketing and attract clients right away. 

What? Define your product range and services

Wholesale distributors procure products in bulk from suppliers and then sell them to specialty retailers. The retailers then brand the items and sell them at a higher price point. Your business might also handle the storage of customer inventory, packaging and labeling, and shipping to end buyers.

How much should you charge for wholesale distribution?

Distributors make money by purchasing products in bulk and selling them to retailers at a markup. Pricing can vary greatly depending on which products you sell and the clients you serve. The average price markup is between 20% and 30%.  

If you store inventory out of your home or ship it directly from supplier to retail customer, your ongoing costs will be fairly low. Aim for a profit margin of 85%.

Once you know your costs, you can use this Step By Step profit margin calculator to determine your mark-up and final price points. Remember, the prices you use at launch should be subject to change if warranted by the market.

Who? Identify your target market

Your target market will be retailers who are looking to purchase products in bulk for resale. You’ll need to tailor your marketing efforts to the specific niche you serve. Advertise your products and services on social media sites like Instagram and Facebook. Consider networking with businesses on LinkedIn to generate additional leads.

Where? Choose your business premises

In the early stages, you may want to run your business from home to keep costs low. But as your business grows, you’ll likely need to hire workers for various roles and may need to rent out an office or warehouse. You can find commercial space to rent in your area on sites such as Craigslist , Crexi , and Instant Offices .

When choosing a commercial space, you may want to follow these rules of thumb:

• Central location accessible via public transport
• Ventilated and spacious, with good natural light
• Flexible lease that can be extended as your business grows
• Ready-to-use space with no major renovations or repairs needed

Step 3: Brainstorm a Distribution Business Name

Here are some ideas for brainstorming your business name:

• Short, unique, and catchy names tend to stand out
• Names that are easy to say and spell tend to do better 
• Name should be relevant to your product or service offerings
• Ask around — family, friends, colleagues, social media — for suggestions
• Including keywords, such as “distributor” or “wholesale distribution”, boosts SEO
• Name should allow for expansion, for ex: “Reliable Distribution Co.” over “Beverage Distribution Services”
• A location-based name can help establish a strong connection with your local community and help with the SEO but might hinder future expansion

Discover over 260 unique distribution business name ideas here. If you want your business name to include specific keywords, you can also use our distribution business name generator. Just type in a few keywords and hit “generate” and you’ll have dozens of suggestions at your fingertips.

Once you’ve got a list of potential names, visit the website of the US Patent and Trademark Office to make sure they are available for registration and check the availability of related domain names using our Domain Name Search tool. Using “.com” or “.org” sharply increases credibility, so it’s best to focus on these. 

Find a Domain

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Finally, make your choice among the names that pass this screening and go ahead with domain registration and social media account creation. Your business name is one of the key differentiators that sets your business apart. Once you pick your company name, and start with the branding, it is hard to change the business name. Therefore, it’s important to carefully consider your choice before you start a business entity.

Step 4: Create a Distribution Business Plan

Here are the key components of a business plan:

• Executive Summary: A brief summary outlining the core aspects of the distribution business, including its mission, objectives, and key highlights.
• Business Overview: A concise description of the distribution business, detailing its structure, industry, and the value it brings to the market.
• Product and Services: Clear and specific details about the products or services the distribution business offers, emphasizing their unique selling points.
• Market Analysis: An examination of the target market, including its size, trends, and potential for growth, to inform business strategies.
• Competitive Analysis: A thorough evaluation of competitors in the distribution industry, highlighting strengths, weaknesses, opportunities, and threats to the business.
• Sales and Marketing: A strategic plan outlining how the distribution business will promote and sell its products or services to the target audience.
• Management Team: Introduction of the key individuals responsible for leading and managing the distribution business, emphasizing their relevant experience and skills.
• Operations Plan: Detailed information on the day-to-day activities and processes involved in running the distribution business efficiently.
• Financial Plan: A comprehensive overview of the distribution business’s financial projections, including revenue, expenses, and profitability, to demonstrate its financial viability.
• Appendix: Supplementary materials, such as additional data, charts, or documents, providing further support and context for the distribution business plan.

If you’ve never created a business plan, it can be an intimidating task. You might consider hiring a business plan specialist to create a top-notch business plan for you.

Step 5: Register Your Business

Registering your business is an absolutely crucial step — it’s the prerequisite to paying taxes, raising capital, opening a bank account, and other guideposts on the road to getting a business up and running.

Plus, registration is exciting because it makes the entire process official. Once it’s complete, you’ll have your own business! 

Choose where to register your company

Your business location is important because it can affect taxes, legal requirements, and revenue. Most people will register their business in the state where they live, but if you are planning to expand, you might consider looking elsewhere, as some states could offer real advantages when it comes to distribution businesses. 

If you’re willing to move, you could really maximize your business! Keep in mind, it’s relatively easy to transfer your business to another state. 

Choose your business structure

Business entities come in several varieties, each with its pros and cons. The legal structure you choose for your distribution business will shape your taxes, personal liability, and business registration requirements, so choose wisely. 

Here are the main options:

• Sole Proprietorship – The most common structure for small businesses makes no legal distinction between company and owner. All income goes to the owner, who’s also liable for any debts, losses, or liabilities incurred by the business. The owner pays taxes on business income on his or her personal tax return.
• General Partnership – Similar to a sole proprietorship, but for two or more people. Again, owners keep the profits and are liable for losses. The partners pay taxes on their share of business income on their personal tax returns.
• Limited Liability Company (LLC) – Combines the characteristics of corporations with those of sole proprietorships or partnerships. Again, the owners are not personally liable for debts.
• C Corp – Under this structure, the business is a distinct legal entity and the owner or owners are not personally liable for its debts. Owners take profits through shareholder dividends, rather than directly. The corporation pays taxes, and owners pay taxes on their dividends, which is sometimes referred to as double taxation.
• S Corp – An S-Corporation refers to the tax classification of the business but is not a business entity. An S-Corp can be either a corporation or an LLC , which just need to elect to be an S-Corp for tax status. In an S-Corp, income is passed through directly to shareholders, who pay taxes on their share of business income on their personal tax returns.

We recommend that new business owners choose LLC as it offers liability protection and pass-through taxation while being simpler to form than a corporation. You can form an LLC in as little as five minutes using an online LLC formation service. They will check that your business name is available before filing, submit your articles of organization , and answer any questions you might have.

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Step 6: Register for Taxes

The final step before you’re able to pay taxes is getting an Employer Identification Number , or EIN. You can file for your EIN online or by mail or fax: visit the IRS website to learn more. Keep in mind, if you’ve chosen to be a sole proprietorship you can simply use your social security number as your EIN. 

Once you have your EIN, you’ll need to choose your tax year. Financially speaking, your business will operate in a calendar year (January–December) or a fiscal year, a 12-month period that can start in any month. This will determine your tax cycle, while your business structure will determine which taxes you’ll pay.

The IRS website also offers a tax-payers checklist , and taxes can be filed online.

It is important to consult an accountant or other professional to help you with your taxes to ensure you are completing them correctly.

Step 7: Fund your Business

Securing financing is your next step and there are plenty of ways to raise capital:

• Bank loans: This is the most common method but getting approved requires a rock-solid business plan and strong credit history.
• SBA-guaranteed loans: The Small Business Administration can act as guarantor, helping gain that elusive bank approval via an SBA-guaranteed loan .
• Government grants: A handful of financial assistance programs help fund entrepreneurs. Visit Grants.gov to learn which might work for you.
• Friends and Family: Reach out to friends and family to provide a business loan or investment in your concept. It’s a good idea to have legal advice when doing so because SEC regulations apply.
• Crowdfunding: Websites like Kickstarter and Indiegogo offer an increasingly popular low-risk option, in which donors fund your vision. Entrepreneurial crowdfunding sites like Fundable and WeFunder enable multiple investors to fund your business.
• Personal: Self-fund your business via your savings or the sale of property or other assets.

Bank and SBA loans are probably the best option, other than friends and family, for funding a distribution business. You might also try crowdfunding if you have an innovative concept.  

Step 8: Apply for Distribution Business Licenses and Permits

Starting a distribution business requires obtaining a number of licenses and permits from local, state, and federal governments.

Federal regulations, licenses, and permits associated with starting your business include doing business as (DBA), health licenses and permits from the Occupational Safety and Health Administration ( OSHA ), trademarks, copyrights, patents, and other intellectual properties, as well as industry-specific licenses and permits. 

You may also need state-level and local county or city-based licenses and permits. The license requirements and how to obtain them vary, so check the websites of your state, city, and county governments or contact the appropriate person to learn more. 

You could also check this SBA guide for your state’s requirements, but we recommend using MyCorporation’s Business License Compliance Package . They will research the exact forms you need for your business and state and provide them to ensure you’re fully compliant.

This is not a step to be taken lightly, as failing to comply with legal requirements can result in hefty penalties.

If you feel overwhelmed by this step or don’t know how to begin, it might be a good idea to hire a professional to help you check all the legal boxes.

Step 9: Open a Business Bank Account

Before you start making money, you’ll need a place to keep it, and that requires opening a bank account .

Keeping your business finances separate from your personal account makes it easy to file taxes and track your company’s income, so it’s worth doing even if you’re running your distribution business as a sole proprietorship. Opening a business bank account is quite simple, and similar to opening a personal one. Most major banks offer accounts tailored for businesses — just inquire at your preferred bank to learn about their rates and features.

Banks vary in terms of offerings, so it’s a good idea to examine your options and select the best plan for you. Once you choose your bank, bring in your EIN (or Social Security Number if you decide on a sole proprietorship), articles of incorporation, and other legal documents and open your new account. 

Step 10: Get Business Insurance

Business insurance is an area that often gets overlooked yet it can be vital to your success as an entrepreneur. Insurance protects you from unexpected events that can have a devastating impact on your business.

Here are some types of insurance to consider:

• General liability: The most comprehensive type of insurance, acting as a catch-all for many business elements that require coverage. If you get just one kind of insurance, this is it. It even protects against bodily injury and property damage.
• Business Property: Provides coverage for your equipment and supplies.
• Equipment Breakdown Insurance: Covers the cost of replacing or repairing equipment that has broken due to mechanical issues.
• Worker’s compensation: Provides compensation to employees injured on the job.
• Property: Covers your physical space, whether it is a cart, storefront, or office.
• Commercial auto: Protection for your company-owned vehicle.
• Professional liability: Protects against claims from a client who says they suffered a loss due to an error or omission in your work.
• Business owner’s policy (BOP): This is an insurance plan that acts as an all-in-one insurance policy, a combination of the above insurance types.

Step 11: Prepare to Launch

As opening day nears, prepare for launch by reviewing and improving some key elements of your business. 

Essential software and tools

Being an entrepreneur often means wearing many hats, from marketing to sales to accounting, which can be overwhelming. Fortunately, many websites and digital tools are available to help simplify many business tasks.  

You may want to use industry-specific software, such as Zoey , Znode , or NetSuite to create quotes, track shipments, and run sales reports. 

• Popular web-based accounting programs for smaller businesses include Quickbooks , Freshbooks , and Xero . 
• If you’re unfamiliar with basic accounting, you may want to hire a professional, especially as you begin. The consequences for filing incorrect tax documents can be harsh, so accuracy is crucial.

Develop your website

Website development is crucial because your site is your online presence and needs to convince prospective clients of your expertise and professionalism.

You can create your own website using website builders . This route is very affordable, but figuring out how to build a website can be time-consuming. If you lack tech-savvy, you can hire a web designer or developer to create a custom website for your business.

They are unlikely to find your website, however, unless you follow Search Engine Optimization ( SEO ) practices. These are steps that help pages rank higher in the results of top search engines like Google. 

Here are some powerful marketing strategies for your future business:

• Professional Branding — Ensure your branding communicates efficiency, reliability, and logistical expertise through your logo, website, fleet branding, and staff uniforms.
• Website & SEO — Develop a comprehensive website detailing your services, network reach, and client testimonials. Optimize for search terms related to distribution services, logistics solutions, and supply chain management.
• Social Media Engagement — Use LinkedIn for B2B networking and sharing industry insights. Employ Twitter for disseminating company news and logistics trends.
• Content Marketing — Maintain a logistics blog that provides insights into supply chain optimization, industry trends, and successful case studies. Host webinars and online workshops to address common logistics challenges.
• Email Marketing — Send regular newsletters updating clients and prospects about your services, new technologies in logistics, and market insights.
• Facility Tours — Offer tours of your distribution centers to showcase your capabilities and the technologies employed, enhancing transparency and trust.
• Strategic Partnerships — Form partnerships with complementary businesses like manufacturers or retailers for mutual client referrals.
• Customized Service Packages — Offer tailored service packages that meet the specific needs of individual clients, emphasizing a personalized approach to service delivery.
• Client Retention Programs — Implement programs designed to maintain strong relationships with existing clients, such as regular business reviews or loyalty discounts.
• Targeted B2B Advertising — Utilize digital advertising on industry-specific platforms and LinkedIn to reach potential business clients, supplemented by contributions to trade publications and online forums to demonstrate your expertise.

Focus on USPs

Unique selling propositions, or USPs, are the characteristics of a product or service that sets it apart from the competition. Customers today are inundated with buying options, so you’ll have a real advantage if they are able to quickly grasp how your distribution business meets their needs or wishes. It’s wise to do all you can to ensure your USPs stand out on your website and in your marketing and promotional materials, stimulating buyer desire. 

Global pizza chain Domino’s is renowned for its USP: “Hot pizza in 30 minutes or less, guaranteed.” Signature USPs for your distribution business could be:

• High-quality goods shipped lightning fast!
• Taking your retail outlet to the next level with top-notch products
• World-class distribution at budget prices

You may not like to network or use personal connections for business gain. But your personal and professional networks likely offer considerable untapped business potential. Maybe that Facebook friend you met in college is now running a wholesale distribution business, or a LinkedIn contact of yours is connected to dozens of potential clients. Maybe your cousin or neighbor has been working in product distribution for years and can offer invaluable insight and industry connections. 

The possibilities are endless, so it’s a good idea to review your personal and professional networks and reach out to those with possible links to or interest in distribution. You’ll probably generate new customers or find companies with which you could establish a partnership. Online businesses might also consider affiliate marketing as a way to build relationships with potential partners and boost business.

Step 12: Build Your Team

If you’re starting out small from a home office, you may not need any employees. But as your business grows, you will likely need workers to fill various roles. Potential positions for a distribution business include:

• Administrative Assistant – Track inventory, ship products to customers
• Marketing Lead – Manage social media accounts, run advertising campaigns 
• Accountant – Bookkeeping, tax preparation

At some point, you may need to hire all of these positions or simply a few, depending on the size and needs of your business. You might also hire multiple workers for a single role or a single worker for multiple roles, again depending on need. 

Free-of-charge methods to recruit employees include posting ads on popular platforms such as LinkedIn, Facebook, or Jobs.com. You might also consider a premium recruitment option, such as advertising on Indeed , Glassdoor , or ZipRecruiter . Further, if you have the resources, you could consider hiring a recruitment agency to help you find talent. 

Step 13: Run a Distribution Business – Start Making Money!

Wholesale distribution is a profitable and fast-growing line of work. If you have a passion for product delivery and services, you could get in on the action, help retail businesses and build your own distribution empire!

You’ve done your homework and gained the insights needed for a successful launch, now it’s time to start achieving your distribution dreams.  

• Distribution Business FAQs

Yes, distribution businesses can be extremely profitable. The key to success is finding the right product niche and using effective pricing strategies to generate the most revenue.

A distributor will likely make more than a wholesaler since they work with higher volume clients. It depends somewhat on the industry.

You have to find your niche, perhaps an underserved niche. Then you need to develop a successful track record that you can market.

You have to be a good sales person and a good negotiator. You also need to develop good relationships to get repeat orders.

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• Decide if the Business Is Right for You
• Hone Your Idea
• Brainstorm a Distribution Business Name
• Create a Distribution Business Plan
• Register Your Business
• Register for Taxes
• Fund your Business
• Apply for Distribution Business Licenses and Permits
• Open a Business Bank Account
• Get Business Insurance
• Prepare to Launch
• Build Your Team
• Run a Distribution Business - Start Making Money!

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Wholesale & Distributor Business Plans

Coffee distribution business plan.

The Coffee Warehouse is a new business providing full service distribution of coffee and supplies to coffee houses and espresso stands throughout the Spokane and Northern Idaho market.

Farm Machinery Manufacturer Business Plan

Kouros Brothers Ltd. is an established manufacturer and retailer of agricultural planting and harvesting machinery on the island of Cyprus.

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FireRescue Depot is a start-up showroom and Internet e-commerce business supplying fire and emergency rescue departments with specialized, heavy-duty, hydraulic rescue tools.

Wholesale Bicycle Distributor Business Plan

Wheelie Deals is a wholesale distributor of bicycles and bicycle parts, focusing on closeouts, discontinued models, seconds, etc.

Before you write a business plan, do your homework. These sample business plans for wholesale and distribution businesses will give you the head start you need to get your own business plan done.

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What Is a Distribution Channel?

• How It Works
• In the Digital Era
• Choosing a Distribution Channel
• Distribution Channel FAQs

The Bottom Line

• Supply Chain

What Is a Distribution Channel in Business and How Does It Work?

A distribution channel is the network of businesses or intermediaries through which a good or service passes until it reaches the final buyer or the end consumer. Distribution channels can include wholesalers , retailers , distributors, and even the internet.

Distribution channels are part of the downstream process, answering the question "How do we get our product to the consumer?" This is in contrast to the upstream process, also known as the supply chain, which answers the question "Who are our suppliers?"

Key Takeaways

• A distribution channel represents a chain of businesses or intermediaries through which the final buyer purchases a good or service.
• Distribution channels include wholesalers, retailers, distributors, and the Internet.
• In a direct distribution channel, the manufacturer sells directly to the consumer. Indirect channels involve multiple intermediaries before the product ends up in the hands of the consumer .

Jessica Olah / Investopedia

Understanding Distribution Channels

A distribution channel is a path by which all goods and services travel to arrive at the intended consumer. Distribution channels can be short or long, and depend on the number of intermediaries required to deliver a product or service.

Increasing the number of ways a consumer can find a good can increase sales but it can also create a complex system that sometimes makes distribution management difficult. Longer distribution channels can also mean less profit for each intermediary along the way.

Components of a Distribution Channel

• Producer: Producers combine labor and capital to create goods and services for consumers.

• Agent: Agents commonly act on behalf of the producer to accept payments and transfer the title of the goods and services as it moves through distribution.

• Wholesaler: A person or company that sells large quantities of goods, often at low prices, to retailers.

• Retailer: A person or business that sells goods to the public in small quantities for immediate use or consumption.

• End Consumer: A person who buys a product or service.

Types of Distribution Channels

A direct channel allows the consumer to make purchases from the manufacturer. This direct, or short channel, may mean lower costs for consumers because they are buying directly from the manufacturer.

An indirect channel allows the consumer to buy the goods from a wholesaler or retailer. Indirect channels are typical for goods that are sold in traditional brick-and-mortar stores.

Hybrid distribution channels use both direct channels and indirect channels. A product or service manufacturer may use both a retailer to distribute a product or service and may also make sales directly with the consumer.

Distribution Channel Levels

This is a direct-to-consumer model where the producer sells its product directly to the end consumer. Amazon, which uses its platform to sell Kindles to its customers, is an example of a direct model. This is the shortest distribution channel possible, cutting out both the wholesaler and the retailer.

A producer sells directly to a retailer who sells the product to the end consumer. This level includes only one intermediary. HP or Dell are large enough to sell their computer products directly to reputable retailers such as Best Buy.

Including two intermediaries, this level is one of the longest because it includes the producer, wholesaler, retailer, and consumer. In the wine and adult beverage industry, a winery cannot sell directly to a retailer. It operates in a multi-tiered system, meaning the law requires the winery to first sell its product to a wholesaler who then sells to a retailer. The retailer then sells the product to the end consumer.

This level may add the jobber , this level adds the role of the individual who may assemble products from a variety of producers, stores them, sells them to retailers, and acts as a middle-man for wholesalers and retailers.

A distribution channel, also known as placement, can be part of a company's marketing strategy, which also includes the product, promotion, and price.

Distribution Channels in the Digital Era

Digital technology has transformed the way businesses, especially small businesses use direct channels of distribution. With increasing consumer demand for online shopping and easy-to-use eCommerce tools, direct selling means more success for businesses.

Rather than having to rely on relationships with retailers to sell their products, software and artificial intelligence (AI) sales technology allows companies to manage sales, and automatically achieve high customer relationship management (CRM).

Online advertising through social networks and search engines targets specific areas or demographics and social media networks are increasingly considered the industry standard and changing marketing strategies. 

If a company continues to use indirect channels of distribution, digital technology also allows them to manage relationships with wholesale and retail partners more efficiently.

Choosing the Right Distribution Channel

Not all distribution channels work for all products, so companies need to choose the right one. The channel should align with the firm's overall mission and strategic vision including its sales goals.

The method of distribution should add value to the consumer. Do consumers want to speak to a salesperson? Will they want to handle the product before they make a purchase? Or do they want to purchase it online with no hassles? Answering these questions can help companies determine which channel they choose.

Secondly, the company should consider how quickly it wants its product(s) to reach the buyer. Certain products are best served by a direct distribution channel such as meat or produce, while others may benefit from an indirect channel.

If a company chooses multiple distribution channels, such as selling products online and through a retailer, the channels should not conflict with one another. Companies should strategize so one channel doesn't overpower the other.

What Is a Distribution Channel and What Components Does It Have?

The term “distribution channel” refers to the methods used by a company to deliver its products or services to the end consumer. It often involves a network of intermediary businesses such as manufacturers, wholesalers, and retailers. Selecting and monitoring distribution channels is a key component of managing supply chains .

What Is the Difference Between Direct and Indirect Distribution Channels?

Direct distribution channels are those that allow the manufacturer or service provider to deal directly with its end customer. For example, a company that manufactures clothes and sells them directly to its customers using an e-commerce platform would be utilizing a direct distribution channel. By contrast, if that same company were to rely on a network of wholesalers and retailers to sell its products, then it would be using an indirect distribution channel.

How Is Placement Important in a Distribution Channel?

Placement is the way a company ensures its target market has access to its products or service in the location they would be most likely to look for that product or service. An effective distribution system ensures that products are placed in the right location as needed.

A distribution channel is the network of businesses or intermediaries through which a good or service passes until it reaches the end consumer. Distribution channels can contain many levels or intermediaries, such as wholesalers or retailers, as products move from manufacturer to consumer. The introduction of eCommerce platforms has streamlined distribution enabling producers to sell directly to consumers.

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Bipartisan group of senators reveals plan to address physician shortages. will radiology benefit.

A bipartisan group of U.S. senators has revealed a plan to address physician shortages in the U.S., with the benefit to radiology remaining unclear.

Finance Committee Chairman Sen. Ron Wyden, D-Ore., and colleagues announced the new “ policy outline ” on May 24. The proposal comes after the committee held an April hearing to discuss Medicare payment reform for radiologists and other physicians.

Wyden and colleagues announced the follow-up Friday, with plans to “expand and improve” the distribution of Medicare-supported residency training positions in rural areas and “specialties in shortage.” The outline is focused primarily on primary care and psychiatry but does leave leeway for possible benefit in imaging.

“It has become clear that there are not enough physicians to meet the healthcare needs of Americans,” the group of eight senators wrote . “As a bipartisan group of members of the Senate Finance Committee, which has jurisdiction over the Medicare Graduate Medical Education program, we are interested in advancing additional Medicare GME proposals to address healthcare workforce shortages and gaps.”

In making their case, senators cited stats from the Health Resources and Services Administration, which estimates the U.S. will face a shortage of 139,940 physicians across all specialties by 2036. Senate Finance is proposing to add an unspecified number of Medicare GME slots from fiscal 2027 through 2031. At least 25% would go toward primary care residencies while another 15% would address shortages in psychiatry.

In addition, senators are suggesting establishing a time-limited GME Policy Council consisting of nine members representing academic medical institutions, hospitals in underserved communities, medical students and healthcare workforce experts. The group would be tasked with making recommendations to the Health and Human Services secretary about how to distribute the new residency slots, including the specific specialties beyond primary care and psychiatry.

“We have heard concerns that the Medicare GME program does not have a mechanism to support residencies that are projected to be in shortage,” the policy outlines states. “While Congress can direct CMS to allocate a specific percentage of GME slots toward certain specialties, there should be a better mechanism to distribute slots to specialties in shortage that does not require Congressional action.”

In recent years, Congress has added 1,200 new Medicare GME slots including 200 via the 2023 Consolidated Appropriations Act. The Radiology Business Management Association and American College of Radiology commended Congress for this action while expressing concern about restrictions placed on these new positions.

“While there is a definite need to focus on mental health and psychiatry, several specialties are missing out on new residency slots,” the two associations wrote last year . “We recommend that Congress pass legislation to fund GME slots specifically designated for radiology.”

ACR also submitted testimony to the Senate Finance Committee May 2, urging lawmakers to pass the Resident Physician Shortage Reduction Act. Reintroduced  in April 2023,  S.1302  would lift the cap on the number of Medicare-funded GME positions and gradually raise the total tally by 14,000 over the next seven years.

Sens. John Cornyn, R-Texas, Robert Menendez, D-N.J., Bill Cassidy, R-La., Michael Bennet, D-Colo., Thom Tillis, R-N.C., Catherine Cortez Masto, D-Nev., and Marsha Blackburn, R-Tenn., also are supporting the draft proposal.

Related Articles:

Acr urges ‘swift congressional action’ to increase the supply of radiologists, us senators continue their push for radiologist medicare pay reform, senate finance committee plans hearing to discuss radiologist medicare payment reform, radiology business advocates implore congress to remedy worsening physician shortages, acr urges feds to prioritize radiology in funding for 1,000 new physician residency slots, cms investing $1.8b to fund 1,000 new residency slots, the largest increase in 25 years, american college of radiology backs bipartisan push to address ‘alarming’ resident physician shortages.

Marty Stempniak has covered healthcare since 2012, with his byline appearing in the American Hospital Association's member magazine, Modern Healthcare and McKnight's. Prior to that, he wrote about village government and local business for his hometown newspaper in Oak Park, Illinois. He won a Peter Lisagor and Gold EXCEL awards in 2017 for his coverage of the opioid epidemic. 

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