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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 write a business plan for a distribution company?

Writing a business plan for a distribution company is essential in order to get your business off the ground, improve profitability or raise financing. 

Whether you are starting up a new distribution company or looking to grow an existing one, having an effective and comprehensive business plan is key.

This guide will provide detailed information on why writing a business plan for your distribution company is important, what information it should contain, and what tools can be used to write your own. 

With this guide as your reference, you will have all the knowledge needed to create an effective and successful business plan for your distribution company.

In this guide:

Why write a business plan for a distribution company?

What information is needed to create a business plan for a distribution company, how do i build a financial forecast for a distribution company, the written part of a distribution business plan, what tool should i use to write my distribution business plan.

There are several reasons to write a distribution business plan. Below, we cover some of the most important ones!

To set a clear roadmap

Writing a business plan for a distribution company is an important step for entrepreneurs to ensure the long-term success of their venture. 

It requires you to think strategically and set objectives that will guide your decisions over the next 3-5 years.

This is especially critical for startups who need to consider all aspects of their business idea and ensure it can be viable before investing time and money, but also beneficial for established distribution companies looking to expand or improve operations in the coming years. 

By having a clear roadmap laid out before them, you can have a better understanding of what needs to be done in order to reach your business objectives. 

Planning ahead also helps you anticipate any potential obstacles that may stand in the way of success, allowing you to take proactive measures and adjust your plans accordingly. 

To get clarity on your cash flow

One of the most important benefits of having a business plan is that it allows you to regularly compare your financial performance against what was planned and make necessary adjustments in order to keep your forecast accurate. 

By doing this regularly, you can identify potential financial issues (such as an unexpected cash shortfall) early on and take corrective action before they become serious problems. This also enables you to seize opportunities that may arise along the way in order to maximise profits or grow faster.

To secure financing

Having a comprehensive distribution company business plan is also essential for getting financing from banks or investors. 

Banks use the business plan to assess your borrowing capacity, identify potential collateral, and decide whether they think you will be able to repay the funds they lend your company. 

Similarly, creating a business plan for your distribution company is also an essential step when looking to secure financing from equity investors. 

Investors will carefully review the business plan to ensure that their investment in your distribution company can generate good returns. As such, they will want to see evidence of healthy growth and profitability as well as strong cash flows in your business plan. 

With a comprehensive and well-thought-out business plan, you can be confident that you are presenting potential lenders or investors with all the information they need to make an informed decision about financing your company.

Now that we understand why it is important to write a business plan for your distribution company, let's look into what information is needed in order to create one.

Create your distribution business plan online!

Think your distribution business could be profitable? Find out how with a business plan!

Writing a distribution business plan requires research so that you can project sales, investments and cost accurately in your financial forecast.

In this section, we cover three key pieces of information you should gather before drafting your plan!

Carrying out market research for a distribution company

Carrying out market research prior to writing a business plan for your distribution company is essential in order to get an accurate understanding of your target market and competitive landscape 

This information is invaluable when it comes to forecasting revenues and creating realistic projections in the business plan. But also in order to convince and demonstrate to the reader that there is a real opportunity to be seized on the target market.

Developing the marketing plan for a distribution company

Getting a clear picture of the road to market for your distribution company is also a prerequisite for writing the actual business plan itself.

This will be key when it comes to both forecasting sales and marketing expenditures in the financial forecast, and communicating your strategy effectively in your business plan. 

The staffing and equipment needs of a distribution company

Distribution companies require serious capital expenditures - from fleets of trucks and warehouses to highly specialised packing equipment - and a significant workforce. 

It is essential to think through the recruitment plan, financial investments, and any other costs (and associated timings) that may be associated with the business before you start drafting the document. 

Once you've gathered the information mentioned above, it will be time to start working on the financial forecast for your distribution company. Let’s see what this entails

The objective of the financial forecast for a distribution company is to obtain 4 key financial tables: the Profit & Loss (P&L) statement, the balance sheet, cash flow forecast and a sources and uses table. 

Let’s have a look at each of these in a bit more detail.

The projected P&L statement

The projected P&L statement of a distribution company shows us how much money the company will make and how much it is expected to grow in the future. 

The projected balance sheet of your distribution company

The balance sheet for a distribution company is a financial document that provides an overview of the company’s assets, liabilities, and equity at a specific point in time. 

This statement serves as a snapshot of the business's financial health and can be used to determine the company’s ability to repay its debt in the short term (liquidity) and medium term (solvency). 

Assets are items of value that your company holds, such as cash, inventory, accounts receivable and property; liabilities are the money owed to creditors or other businesses; and equity is what remains after liabilities have been subtracted from assets (and can be used as a proxy for shareholder value).

By looking at a company’s balance sheet, lenders, investors, and the business owner can gain insight into the financial health of the company. 

A balance sheet is a valuable tool for assessing how the company is doing financially, and ultimately its ability to remain sustainable and profitable over time.

The projected cash flow statement

A projected cash flow statement is a helpful tool for a distribution company. It shows how much money the company will have coming in and going out over a certain period of time. 

This helps you plan and ensure the business has enough capital for growth and investments. 

The initial financing plan

The initial financing plan (also called the sources and uses table) shows the sums that the company needs to start and how they will be used. 

It is important to have this so that you know how much capital is needed to deliver the business plan and what it will be used for. 

The sources show where the money comes from, such as investors or loans. The uses show what the money will be used for, like buying equipment or working capital. By having a source and use table, you can make sure that your business has enough money to get started!

Now that you understand what the financial forecast is made of, it's time to move on to another key part of the business plan - the written section. 

The written section is an important component, as it provides the context needed to understand and interpret financial figures. 

Let's dive in and take a closer look at this essential piece of your distribution company’s business plan.

A comprehensive business plan for your distribution company contains seven key sections: executive summary, presentation of the company, products and services section, market analysis, strategy section, operations section and financial plan.

1. The executive summary

The executive summary of a distribution company plan should start with a concise overview of your business. 

This section should then include an overview of the market, highlighting any competitive advantages that your company has. 

You should also include key financials such as expected revenues, costs, and profit margins.

Finally, this section should include a clear and concise explanation of the ask that your company is making to potential investors or lenders. This could include an overview of the funding required, and what it will be used for. 

The executive summary should succinctly capture all of these important details in order to convince stakeholders to read the rest of your business plan.

2. The presentation of the company

When writing the presentation of a distribution company for a business plan, it is important to focus on three key elements: structure and ownership, location and management team.

Starting with the structure and ownership, it is important to provide an accurate description of the legal framework of the company. This includes information about the type of business entity the company is operating under, the ownership structure and whether any external investors are involved. 

Additionally, investors may be interested in understanding any equity or debt held by the company and how the capital has been allocated.

The location of a distribution business is also critical for success. Any information about where the warehouse facilities are located as well as how many and what size they are should be included in the business plan. 

This information should also include geographic reach and any serviceable areas where the company has a particularly strong presence.

Finally, a complete description of the management team is essential for investors. The management team’s expertise and experience in the industry must be highlighted, including information about their roles and qualifications. 

3. The products and services section

When writing the products and services section of a business plan for a distribution company, it’s important to include detailed information about what your company actually does. 

You should start with an overview of the types of services offered - such as transportation, storage, packaging, click and collect, etc. - and then move on to specifics like which modes of transport are used (airfreight, sea-freight) or what type of packaging is available (pharmaceutical goods, food and beverage, standard good parcels, etc.).

It’s also important to provide details on any additional value-added services provided by the company; these could include things like custom labelling and product assembly. 

Additionally, mention if there are any special certifications or accreditations that make your business stand out from competitors in terms of quality control and safety standards. Ultimately these factors will be key in convincing potential investors that this is a viable business opportunity worth investing in.

4. The market analysis

When presenting the conclusion of your market analysis in your distribution company's business plan, it is important to include information about demographics and segmentation, target market, competition, barriers at entry, and regulation. 

This will ensure that the reader of the business plan - whether they be a bank or an investor - has all the necessary information to make an informed decision with regard to the size of the opportunity in the target market.

Demographics and segmentation should cover the target market size as well as any other pertinent data points such as verticals served. Understanding these details will help provide insight into which segments are viable targets for the company’s products and services. 

Additionally, understanding who your competitors are within those segments is key to assessing whether the company is well-positioned to capture the opportunity

It is also important for the reader to understand any potential barriers at entry that could limit your ability to enter certain market segments; this could include regulations from governmental agencies or clients being locked in existing long-term contracts with other distributors. 

5. The strategy section

When writing the strategy section of a business plan for your distribution company, it is essential to include information about your competitive edge, pricing strategy, marketing plan, milestones and risks and mitigants. 

The competitive edge should be outlined in detail; this includes any unique features or services that set your company apart from competitors. 

Additionally, the pricing strategy must be included to demonstrate how you intend to remain profitable while still offering competitive prices in order to attract customers. 

A comprehensive sales & marketing plan should also be included, this outlines how you intend to reach out and acquire new customers as well as retain existing ones with loyalty programs or special offers. 

It’s also important to include specific milestones along with dates so that everyone involved has clear expectations of progress being made over time and what the next sets of goals are. 

Finally, identifying potential risks early on and providing mitigating factors is essential in order for investors or lenders to feel secure in investing their money into your venture.

6. The operations section

In order to present the operations of your distribution company in a business plan, it is important to provide detailed information about the staffing team, roles of staff members, and recruitment plan. 

This should include job descriptions for each role, details on how they will be compensated, and an outline of the recruitment and training processes. 

Other key elements of a distribution company’s operations that need to be addressed in the business plan include any assets and intellectual property owned by the business. 

This includes physical items such as warehouses (whether owned or leased), trucks, and equipment needed for daily operations. 

Additionally, any relevant intellectual property such as brand names, logos and copyrights should be clearly stated in the plan.

Finally, it is important to outline the suppliers that a distribution company plans to work with. This should include information about contractual arrangements and payment terms for each supplier. 

With this information included in the business plan, potential investors or lenders will have a better understanding of the operations that are required to run a successful distribution business.

7. The presentation of the financial plan

The financial plan section is where we will include the financial forecast we talked about earlier in this guide.

Now that we have discussed the content of a distribution company business plan, let us look at some of the tools available to help you create one.

In this section, we will review the three main solutions for creating a business plan for your distribution company: using Word and Excel, hiring a consultant, and using online business plan software.

Create your distribution company's business plan using Word and Excel

Using Microsoft Office’s Word and Excel applications for writing a business plan for a distribution company may seem like a cost-effective solution for business owners. 

While this is true in terms of cost, there are also some drawbacks to this approach that should be considered when making the decision to use Word and Excel.

Creating an accurate financial forecast for a distribution company in Excel can be extremely challenging and time-consuming unless one is an expert accountant and financial modeller. Additionally, financiers may not view such an analysis as reliable since it was created by someone other than a professional.

Furthermore, once created it can be difficult to keep a financial forecast up-to-date. 

Writing the actual business plan in Word is also inefficient as it requires the business owner to start from scratch and spend hours formatting the document afterwards.

Hire a consultant to write your distribution company's business plan

Outsourcing a distribution company plan to a consultant or accountant can be a viable solution for business owners looking to present their plan to investors or banks. 

Consultants and accountants are both well-equipped to write business plans and create financial forecasts. 

However, there are some drawbacks to outsourcing a business plan. For one, accountants may lack the industry expertise to accurately forecast sales. 

Additionally, hiring consultants or accountants will be costly and there is potential for unexpected extra costs if modifications or updates need to be made to the plan. 

Furthermore, entrepreneurs who outsource their distribution company's plan have less control over the outcome of the project than if they had written it themselves. 

Finally, not all consultants have experience with business planning related to distribution companies and may not possess the same level of expertise as an entrepreneur who is very familiar with their industry. 

Use an online business plan software for your distribution company's business plan

Another alternative is to use online business plan software . There are several advantages to using specialised software:

• You are guided through the writing process by detailed instructions and examples for each part of the plan 
• You can be inspired by already written business plan templates 
• You can easily make your financial forecast by letting the software take care of the financial calculations for you, without error
• You get a professional document, formatted and ready to be sent to your bank
• You can easily update your financial forecast and track it against actual financial performance to see where the business stands

If you're interested in using this type of solution, you can try our software for free by signing up here . 

We hope that this article has helped you to better understand how to write the business plan for a distribution company. Do not hesitate to contact us if you still have questions!

Also on The Business Plan Shop

• Do I need a business plan? Your questions answered
• Business Model vs. Business Plan
• How to write the business plan for a grant application?

Know someone in the distribution industry? Share this article with them!

Founder & CEO at The Business Plan Shop Ltd

Guillaume Le Brouster is a seasoned entrepreneur and financier.

Guillaume has been an entrepreneur for more than a decade and has first-hand experience of starting, running, and growing a successful business.

Prior to being a business owner, Guillaume worked in investment banking and private equity, where he spent most of his time creating complex financial forecasts, writing business plans, and analysing financial statements to make financing and investment decisions.

Guillaume holds a Master's Degree in Finance from ESCP Business School and a Bachelor of Science in Business & Management from Paris Dauphine University.

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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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How to start a distribution business.

The modern marketplace thrives on the seamless movement of products from manufacturers to consumers, a process made possible by the critical operations of distribution and wholesale companies.

These entities stand as the backbone of commerce, navigating the intricate web of supply and demand.

Entrepreneurs who tap into this sector find themselves at the helm of a dynamic and essential service, facing both vast opportunities and formidable challenges, often starting with understanding how to start a business .

The Distribution Industry

A distribution business acts as an intermediary in the supply chain, moving goods from producers to retailers or directly to customers. Wholesale distributors, in particular, purchase products in bulk from manufacturers and sell them to retailers or other distributors.

At the core of commerce, a successful distribution business ensures that products arrive safely and efficiently at their intended destinations, often navigating complex logistical pathways.

Benefits of Launching a Distribution Company

Embarking on a venture in the distribution industry offers a unique vantage point within the global market.

Entrepreneurs gain insight into the multifaceted nature of transporting goods and the satisfaction of keeping the wheels of commerce turning. In fact, distribution business owners enjoy a variety of benefits, including:

• Diverse Product Handling : Engaging with a wide range of products keeps business operations interesting and diverse. Distributors have the freedom to specialize or expand their portfolios as market trends evolve.
• Supply Chain Significance : Operating a distribution company places you at a pivotal point in the supply chain. Your business becomes essential in bridging the gap between production and market presence.
• Lucrative Partnerships : Building relationships with manufacturers and retailers can lead to profitable, long-term contracts. These partnerships often become the cornerstone of a successful wholesale distribution business.
• Scalability : The distribution sector allows for scalable business growth. Companies can start locally and expand their reach as they establish their networks and increase capacity.
• Technological Integration : Advancements in technology offer distribution businesses tools for efficiency and accuracy. Implementing these technologies can lead to streamlined operations and improved customer satisfaction.

Mapping Out Your Distribution Business Strategy

Entrepreneurs venturing into the distribution sector must navigate a series of strategic decisions that will lay the foundation for their business. From identifying a niche to selecting a location, each choice shapes the future of the enterprise, influencing its growth, operations, and success.

Identify Your Niche and Target Market

Carving out a specific niche within the distribution industry can set a company apart from the competition. By focusing on particular industries, such as the burgeoning balloon business, entrepreneurs can tailor their services to meet unique market needs.

Understanding the target market, especially at the outset, can forge strong relationships with local retailers and retail distributors, offering a focused inventory that caters to their specific demands.

Financial Management

Establishing a robust financial structure for your business is imperative. This includes budgeting, pricing strategies, and securing funding if necessary.  It also means exploring tools like business credit cards, which can help manage cash flow and expenses.

Craft Your Wholesale Distribution Business Plan

A comprehensive business plan serves as a roadmap for a distribution company. It outlines the vision, pinpoints the strategy, and is often a requisite for securing investment. This business plan should detail every aspect of the operation, from market analysis to financial projections, providing a clear path forward and a persuasive argument for potential backers.

Obtain the Necessary Business License and Insurance

Legitimacy in the distribution field begins with obtaining the appropriate business licenses and business insurance policies. These critical steps not only comply with legal requirements but also protect the company’s financial well-being.

Proper licensing establishes credibility with partners, while insurance safeguards against the myriad risks associated with the movement and storage of goods.

Choose a Suitable Location for Your Distribution Business

The location of a distribution business is a determinant of its efficiency. Factors such as accessibility to major roads, the capacity for storage, and proximity to transportation hubs like ports and airports are crucial.

The right location can reduce transit times, lower shipping costs, and ultimately enhance customer satisfaction.

Decide on the Scale of Your Distribution Company

Determining the scale of operations is a pivotal decision. Starting small allows for a focused approach, often with lower initial costs and risks. It provides an opportunity to build a solid reputation with local businesses.

Conversely, aiming for a regional or national presence can offer larger revenue streams and a broader market reach but requires more capital and a robust infrastructure from the onset.

Decide on Common Business Structures

Choosing the right ‘common business structures is crucial for tax, financial, and legal considerations. It’s one of the many steps outlined in a comprehensive business startup checklist that can guide new entrepreneurs through the process.

How to Start a Distribution Business: Step by Step

Embarking on the journey of starting a distribution business involves meticulous planning and execution. Entrepreneurs must consider each step carefully to transform their business vision into a successful operation.

The process from conceptualization to operation is intricate, requiring a strategic approach to product selection, channel management, technology implementation, and logistics.

Select Products and Inventory Management

The cornerstone of a distribution business is its product selection. Entrepreneurs must choose items that not only align with their niche but also have a steady demand. Effective inventory management is crucial to balance supply with customer demand and avoid overstocking or stockouts.

Establishing strong relationships with suppliers is vital, as these partnerships ensure a reliable flow of products and can often lead to better pricing and terms, which is especially important to wholesale distributors.

Opt for the Right Distribution Channels

The choice between direct and indirect distribution channels can significantly impact a business’s reach and profitability. Direct channels allow for closer customer relationships and higher margins, while indirect channels involving intermediaries can expand a business’s reach without the need for extensive infrastructure.

The decision should align with the company’s scale, target market, and whether the focus is on wholesale or retail distribution.

Implement Technology in Wholesale Distribution

In today’s digital age, technology plays a pivotal role in the efficiency of wholesale distribution operations. From sophisticated inventory management software to customer relationship management systems, technology can streamline processes, reduce errors, and enhance customer satisfaction.

Investing in the right tools is essential for staying competitive and managing the complex demands of wholesale distribution.

Understand and Manage Logistics

The success of a distribution business hinges on its logistics—the art of coordinating transportation, warehousing, and the overall movement of goods. Effective logistics management ensures that products are stored properly, inventory levels are maintained, and items are delivered on time.

A well-oiled logistics operation can become a significant competitive advantage, leading to satisfied customers and repeat business.

Marketing and Expanding Your Wholesale Distribution Business

Marketing serves as the engine for growth in the wholesale distribution company, propelling brand visibility and facilitating expansion. A robust marketing strategy can distinguish a distributor in a competitive market, attracting new partners and opening doors to growth opportunities.

Build a Brand in the Distribution Industry

In the distribution sector, a strong brand is synonymous with trust and reliability. It’s not just about a logo or a company name; it’s about the reputation for delivering on promises and providing consistent quality service.

Strategies to build a brand include developing a professional website, engaging in industry events, and leveraging social media to showcase expertise and thought leadership. A brand that resonates with reliability can become a preferred choice for suppliers and retailers alike.

Establish Strong B2B Relationships

The lifeline of a wholesale distributor is the network of B2B relationships they cultivate. Strong partnerships with suppliers ensure a steady flow of products, while relationships with retailers are crucial for sustained sales.

Effective communication, transparent operations, and reliable service are key to forging these connections. By prioritizing the needs and success of their partners, distributors can create a collaborative ecosystem conducive to shared growth.

Adapt to Market Changes and Trends

The distribution industry is in a constant state of flux, with new trends and market shifts regularly emerging. Staying abreast of these changes is not just beneficial; it’s necessary for survival and growth.

Distributors must be agile and ready to adapt their strategies and operations to meet evolving market demands. Whether it’s embracing new technologies, expanding into new product lines, or adjusting to economic shifts, flexibility and foresight are critical for a distributor’s longevity and success. It also means having a website startup guide to ensure a clear path for your online presence.

FAQs: How to Start a Distribution Business

How much does it cost to start a distribution business.

The cost to start a distribution business can vary widely, typically ranging from $10,000 to $100,000.

This initial investment covers expenses such as leasing a warehouse, purchasing inventory, securing transportation, and obtaining the necessary licenses and insurance.

Costs will fluctuate based on the scale of operations, the type of products distributed, and the chosen location.

Prospective business owners should also account for technology and marketing expenses to fully operationalize their venture.

How do distribution businesses manage large-scale logistics?

Distribution businesses manage large-scale logistics by investing in robust logistics software and technology that optimize routing and inventory management.

These companies often establish partnerships with reliable transportation companies to handle deliveries efficiently. Likewise, they may employ logistics experts to oversee supply chain operations, ensuring goods are stored, handled, and transported effectively.

Strategic planning and real-time data analysis are crucial for managing the complexities of large-scale distribution logistics.

What are the challenges faced by new distribution companies?

New distribution companies often face challenges such as intense competition, the need for substantial capital investment, and the complexity of supply chain management.

They must navigate the intricacies of logistics, maintain cost efficiency, and establish strong relationships with suppliers and customers. Staying current with technological advancements and regulatory changes is vital. These hurdles require strategic planning, market knowledge, and adaptability to overcome successfully.

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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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How to Start a Distribution Business

Last Updated: December 14, 2023 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 342,737 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.

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

You Might Also Like

• ↑ 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 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.

download the distribution strategy worksheets & templates

To get you started on creating a killer distribution strategy, download the free PowerPoint Distribution Strategy Worksheets & Templates, which includes:

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

DOWNLOAD STRATEGY PRESENTATION TEMPLATES

168-PAGE COMPENDIUM OF STRATEGY FRAMEWORKS & TEMPLATES 186-PAGE HR & ORG STRATEGY PRESENTATION 100-PAGE SALES PLAN PRESENTATION 121-PAGE STRATEGIC PLAN & COMPANY OVERVIEW PRESENTATION 114-PAGE MARKET & COMPETITIVE ANALYSIS PRESENTATION 18-PAGE BUSINESS MODEL TEMPLATE

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Explore other types of strategy.

BIG PICTURE WHAT IS STRATEGY? BUSINESS MODEL COMP. ADVANTAGE GROWTH

TARGETS MARKET CUSTOMER GEOGRAPHIC

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GO TO MARKET DISTRIBUTION SALES MARKETING

ORGANIZATIONAL ORG DESIGN HR & CULTURE PROCESS PARTNER

EXPLORE THE TOP 100 STRATEGIC LEADERSHIP COMPETENCIES

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Top 10 Distribution Plan Templates with Samples and Examples

When we think of ordering something online, the first name that comes to our mind is "Amazon." The company has reached this position of unrivaled success due to its impeccable services and a well-structured distribution plan, seamlessly connecting every facet of its operational process.

Amazon's strategic distribution network spans warehouses well-located worldwide, ensuring swift order fulfillment. This well-thought-out logistics chain integrates with advanced technology, including robotics and artificial intelligence, streamlining inventory management and delivery processes.

By optimizing their supply channels, Amazon meets customer expectations for rapid deliveries and minimizes costs, enhancing  efficiency. This distribution plan not only enhances operational efficiency but also contributes significantly to Amazon's reputation for reliable and timely deliveries.

What is a distribution plan?

Have you  wondered how your favorite items make their way from the manufacturing facility to your front door? Or how companies choose which retail locations to put their goods on sale?

That's where a distribution plan comes in!

A distribution plan assists companies in ensuring that their goods reach their intended customers at the correct  time and location. Businesses risk missing out on significant sales if they don't have a strong distribution plan in place for getting their items before prospective buyers.

Without a distribution strategy, companies may find it challenging to supply customers with goods or services. This damages their brand and lowers their profitability. A distribution plan is essential for every organization that wishes to succeed, stay competitive, and satisfy client demand.

How to create a distribution plan?

To establish a distribution plan that benefits your organization:

• Recognize your target audience's demands.
• Determine an efficient and cost-effective method of transporting goods or services from the manufacturing hub to the customer.
• Select the best distribution channel for reaching clients, such as direct sales, internet sales, retail shops, wholesalers, and distributors.
• To gain insight into consumer preferences and purchase habits, perform market research.
• Make a distribution plan budget that covers  costs, including marketing, PR, logistics, and shipping.
• To evaluate the effectiveness of the distribution plan, provide performance measures such as market share, sales volume, and customer satisfaction.

SlideTeam provides you with a framework and structure to assist you in drafting a distribution plan. We have curated this set of content-ready Top 10 Distribution Plan Templates. These templates are 100% editable and customizable. It provides you with a structure that allows you to focus on the plan rather than the presentation’s design.

Let’s explore!

Template 1: Distribution Plan Strategy Manufacturer Wholesaler and Retailer Template

Anyone familiar with the  manufacturing industry can profit from this distribution plan strategy demonstrated in this PowerPoint Template. The slide features three distinct outline flow diagrams that illustrate  levels of marketing channels  The manufacturer, wholesaler, and retailer are displayed along three pathways, which ensures smooth flow of information. It enables you to provide an order of command for the manufactured product. Download today!

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Template 2: Distribution Management Plan PowerPoint Slide

This PowerPoint Slide, a complete deck in  20 slides, showcases a distribution plan. A lot of activity happens  between the creation of the final product and its delivery  to its final location.  Using this PPT Bundle, distribution managers of the manufacturing sector can  work on an effective and efficient plan. A distribution model, content distribution channels, a distribution plan template, a timeline, etc., are included in this bundle. It also showcases slides like our mission and vision for the organization, goals and objectives, information about the teams involved, etc. Download this bundle today!

Template 3: Sales and Distribution Plan PowerPoint Template

This PPT Template, a complete deck of 20 slides, showcases an effective sales and distribution plan. This bundle comes with a sales and distribution management action plan for operational efficiency to coordinate tasks and reduce delivery problems. It also showcases a strategy action plan schedule that assists an organization in meeting targets. In addition, a plan of sales and distribution for  industries, comparative analysis, etc, are also mentioned. Download today!

Template 4: Distribution PowerPoint Slide Bundle

Depending on the distribution requirements of a product, you may ensure that consumers can  obtain your goods and services, which will lead to a high customer retention rate. Businesses take into account the most profitable distribution approach while maintaining cost-effectiveness. This PowerPoint Slide, a complete deck in  22 slides, highlights a distribution plan. It showcases slides on types of channels with functions and benefits, considerations for selecting the right distribution channel, distribution management strategies, and more. You can develop the best distribution plan for your company by learning more about the advantages of  strategies. Download this template  now!

Template 5: Content Distribution PPT Template

The term "content distribution" is often heard in marketing groups without any clarification. Even excellent content has the danger of becoming lost , given the noise around content marketing. Content distribution is sharing content via channels to an online audience in  varied media forms. This PowerPoint Slide highlights basic details like the name of the content, registration page, blog post URL, etc. This slide includes social media platforms for content distribution: Facebook, Twitter, and LinkedIn. Download now!

Template 6: Content Distribution Matrix PPT Template

This PowerPoint Info graphic aims at helping marketers  review the effectiveness of  types of Paid, Owned, and Earned media. It assists in promoting or distributing their content in generating site visits, leads or sales compared to the level of investment in applying the media. Download now!

Template 7: Sales and Distribution Plan for Electronics Industry Template

This PowerPoint Slide displays the sales and distribution strategies  that the electronic industry  uses to increase their customer base and revenue. It also illustrates information about multiple products sold through  sales channels such as In-store, online, or both. The slide also depicts distribution channels, budget and the responsible authority. Download this PPT  to display information systematically.

Template 8: Sales and Distribution Plan for Food Industry Template

This PowerPoint Template showcases sales and distribution plans that food organizations  use to track their current status and plans for future.  It also illustrates  information about the products the industry deals in, what strategies it uses to distribute them, etc. All distribution channels through which the products will reach their final destination, as well as projected sales and budget, are also mentioned. Grab it today!

Template 9: Types of Distribution Channels with Core Functions and Benefits Template

This PowerPoint Slide illustrates  distribution channels, which are methods producers use to get their products to consumers. It also displays core functions and benefits that the producer will get using  distribution channels for their products. Direct channels, indirect channels, dual distribution channels, and reverse channels are  studied in this PowerPoint Slide. Download today and systematically display the necessary information.

Template 10: Major Types of Distribution Channels Intermediaries Template

A distribution channel is a network of people and businesses that work together to transport products from a producer to a consumer. Companies and product makers use channel intermediates to transport their products to customers without owning or otherwise being in-charge of a supply train. These middlemen handle logistics and ensure every customer receives their order on time. This PowerPoint Slide mentions the four  main types of channel intermediaries. These include agents, wholesalers, distributors, and retailers with their respective icons and descriptions for easier comprehension. Download Now!

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Distribution Channels: Types, And Examples – Updated 2023

A distribution channel is the set of steps it takes for a product to get into the hands of the key customer or consumer. Distribution channels can be direct or indirect. Distribution can also be physical or digital, depending on the kind of business and industry.

Table of Contents

Distribution Types Database

Why a distribution channel strategy matters.

Often companies undervalue distribution channels as they think that a good product or service will automatically create its distribution.

While this might happen, it is more of a utopia than a reality.

Distribution needs to be created, at times with sheer force combined with strategic planning and a deep understanding of customers’ needs or desire generation.

A traditional distribution strategy looks at the classic 4 Ps  (product, promotion, price, and placement).

Those are the key ingredients to growing the revenues of a business, quickly and sustainably. Thus, a distribution strategy starts from:

• Understanding the wants of their customers.
• Leveraging insights to create a better purchasing experience.
• Developing new products and services that customers will want to buy.
• Creating go-to-market strategies that reach the proper customer target.
• Generating demand for a set of products and services offered.

Without an appropriate strategy for distribution, it is hard to have a successful and sustainable business model .

Types of distribution channels

At a higher level, distribution channels can be broken down into direct channels and indirect channels.

This primarily depends on how long is the chain between who makes the product and the final consumer.

The number of steps it takes will make the distribution channel direct or indirect.

Let’s visualize a distribution chain to understand the difference between direct and indirect strategy :

Where in a direct distribution strategy a producer can access the consumer, in an indirect distribution strategy , the producer will meet its consumer demands via third-parties wholesalers or retailers.

Thus, a direct approach makes the value chain shorter and at the same time allows more control by the producer on how the final customer experiences the product or service offered.

At the same time, a direct-to-consumer strategy is quite expensive and not always effective enough to allow proper distribution.

Therefore, companies often use a mixture of direct and indirect distribution strategies, which determine their marketing mix.

Between the direct-to-consumer and entirely indirect distribution strategy (where the producer sells to a wholesaler), there are several indirect variations based on how many steps it takes to reach the final consumer and how long is the value chain.

For instance, in the scenarios in which a producer sells to a wholesaler, the wholesaler sells to retailers, who reach the final consumers.

However, in some other cases, the distribution channels might be shorter.

Think of the Costco business model , where the company purchases a selected variety of goods in bulk from producers.

Yet instead of reselling that to retailers, Costco itself acts as a retailer by leveraging its membership-based business model  and selling those items in bulk quantity directly to consumers, who appreciate the convenience of its prices together with the selection of high-quality products.

Case study: Apple’s direct and indirect distribution mix

In other cases yet, the distribution channels strategy might be even shorter. Take the example of the Apple business model, where the company sells part of its products via its retail stores.

That creates a unique experience for Apple ‘s consumers and makes the value chain shorter but it also leverages an indirect strategy to make those same products (usually quite expensive) more accessible to mass consumers.

Related : Successful Types of Business Models You Need to Know

Distribution channel vs. supply chain

It is easy to confuse and mix up the definition of distribution channels with the supply chain even though the distribution channels and strategies might sometimes cross with the supply chain.

The distribution strategy concerns primarily with bringing the product in front of customers, especially customers that are willing and ready to buy it.

Therefore, in some cases, bringing a product in front of the right people might be a matter for the supply chain.

For instance, in the Luxottica business model , vertical integration means the ability to control the full customer experience and to choose also the location of the retail stores.

Thus, this is a case in which supply chain management also becomes a distribution strategy . That is why, other players, in the same space, try to enter by using, initially, an opposite strategy .

That of owning only part of the supply chain.

It is critical to maintain a clear difference between supply chain and distribution channel strategy .

While the supply chain comprises all the planning, manufacturing, and logistics activities that make the product go from the purchase of raw materials to transformation into a final product that might get delivered to the final customer ( Zara business model leverages supply chain management as a distribution strategy ).

In short, where supply chain management concerns itself with integrating supply and demand, a distribution strategy involves itself primarily in the demand chain.

To have a deep understanding of the difference between the supply chain and distribution strategy it is important to consider three main aspects.

Case study: Tesla and Google, from physical to digital integration

Supply chain vs. demand chain

Where a supply chain seeks efficiencies that can, for instance, reduce the cost of purchasing raw materials, integrate several parts of the supply chain, or at creating better logistics.

Distribution channels and strategies look more at creating demand for a product or service by leveraging several strategies.

For instance, having insight into potential customers can allow a company to generate demand via distribution and marketing, just like in the Nike business model .

Internal vs. external

A supply chain relates to all the aspects that begin with sourcing raw materials, production processes, inventory management, and all the other processes that bring a product or service in front of the final customer.

On the other hand, a distribution strategy primarily concerns the demand chain. Therefore, the difference is primarily internal vs. external.

The supply chain affects costs and how to reduce them via efficiencies .

Distribution channels and strategies look at how to grow the demand. Thus, increasing revenues for the business.

This distinction is not absolute. As in some cases when a core competence of a company is its supply chain management, then that also becomes a distribution strategy , just like in the Amazon business model case study .

Via efficient inventory management, Amazon can keep large facilities where most tasks are automated.

This allows Amazon to host third-party inventories  of sellers that are part of the Amazon network.

That in turn, makes Amazon stores more interesting for final customers as they can find more products they need, they can get them faster, and purchase them in a bundle.

In this case, the Amazon supply chain strategy in part crosses with its distribution strategy .

Process-centric vs. customer-centric

Where the supply chain is often process-centric.

In short, it wants to improve efficiency , reduce steps among several parts of the chain, and make the process as smooth as possible. Distribution channels and strategies focus on the customer.

Where is the customer? How do we get more of them? Is that a matter of price? Value or product?

A distribution strategy is obsessed with customers.

Once again, this is a rough distinction as, in some cases, companies have a customer-centric approach at any company level.

That’s what Jeff Bezos means when he says that successful companies need to stay in “ Day One. “

Why you need to understand the demand chain

Demand chain management is a complex endeavor that involves the relations among suppliers and customers and how those interested in growing the demand for the product or service.

At the core, it is about designing a business model that allows the organization to meet customer needs and create desire and demand with an existing supply chain.

Thus, the demand chain is the value chain from your customers’ perspective.

This implies synergies between the supply chain and distribution and marketing to design a business model that delivers the most suited value proposition and generates higher revenues for the business.

It is almost like demand chain management allows supply chain management to look outside the company’s boundaries and understand the market.

Therefore, demand management will primarily understand, generate, and stimulate customer demand and align the supply chain processes with that.

A proper distribution strategy focuses on understanding the supply and value chain to design a sustainable business model , where, for instance:

• The company has to guarantee enough margins and the proper condition to third-parties distributors to allow them to run sustainable operations.
• Align the incentives between the company, the distributors, and consumers.
• Train and educate distributors so that they can offer the best customer experience.
• Create alignment between distributors to avoid fragmented pricing, placement, and promotion strategy .
• Understand what products or services might allow the organization to grow its reach.

B2B, B2C, and distribution channels

A distribution strategy and therefore, the distribution channels involved will change based on the target customer.

Indeed, selling to a business clientele is not the same thing as selling to consumers.

This implies different capabilities and distribution strategies.

For instance, a B2B (business-to-business) distribution strategy might be shorter, as you can directly reach the businesses that will act as intermediaries between you and the final consumer.

Think of the case of a company selling software as a service (so-called SaaS ). If that software is complex and requires a certain degree of expertise, it will be better suited to be sold via other agencies and third parties, which in turn will have access to the consumer business.

This will imply a distribution strategy focused on acquiring the proper sales force to manage the more complex clients.

On the other hand, if a company sells an app for the iPhone which doesn’t require any particular expertise from the final user.

The company will have direct access to its consumers and will use marketing channels which don’t necessarily require a complex salesforce.

This is a critical difference between marketing and sales.

B2B2C distribution strategy

Another form of distribution strategy is a B2B2C , where a brand can leverage existing pipelines to access the market.

In this case, the B2B2C strategy to work has to enable the brand to be known by a larger customer base or audience while it leverages existing players with an established distribution platform.

That is how you can structure your company’s strategy around a B2B2C business model .

Traditional distribution channels vs. digital distribution channels

Over time, to build a sustainable digital strategy, you need to move from third-party to owned distribution, as explained below: 

As consumer behaviors had swiftly changed in the last decades, more and more people purchase via the internet, and they feel more and more comfortable buying expensive items on the web.

For instance, Tesla allows you to order a $65K car directly on its site.

Therefore, digital distribution strategies are critical for any business, also one that has always operated offline.

As explained by Gabriel Weinberg, CEO, and founder of DuckDuckGo , there are at least 19 distribution channels between online and off-line:

• Targeting Blogs
• Unconventional PR
• Search Engine Marketing
• Social and Display Ads
• Offline Ads
• Search Engine Optimization
• Content Marketing
• Email Marketing
• Viral Marketing
• Engineering as Marketing
• Business Development
• Affiliate Programs
• Existing Platforms
• Trade Shows
• Offline Events
• Speaking Engagements
• Community Building

Each of those channels can be a critical ingredient to enhance the revenues of a business.

What matters is to experiment, according to the Bullseye Framework :

Related : Growth Marketing Strategies For Your Online Business

Distribution management: marketing or sales?

Understanding whether distribution management is a matter of sales or marketing is superfluous as it might make us switch the focus from what’s important.

However, it makes sense to draw some lines as this allows proper attribution of responsibility and accountability across the departments of an organization.

Thus, distribution management is typically seen as a marketing function. Yet, once again it depends on the kind of organization you’re running.

Imagine the case of a company that sells to wholesalers or retailers; this means most of the contracts might be managed by salespeople, as they require an understanding of deal terms, relationships, and partnerships in place.

In that case, your salesforce will be able to give you insights that can help you improve the distribution strategy.

In the opposite scenario, where the company sells a product directly to consumers, most of the processes might be automated. Thus, most of the insights will be in the hands of the marketing department.

How do you assess the right mix for your distribution strategy?

When building up a distribution strategy, it’s important to balance speed and control.

And to leverage those channels that can give momentum to the business.

Yet also, in the long-term prioritize those channels that make the company viable and its business model solid.

Key takeaways and why distribution is your most important asset

At any time, businesses can leverage open and closed strategies to enhance and create ecosystems that enable the business to thrive.

In short, companies like Google , Amazon , GitHub , Uber , Airbnb , Twitter , Facebook , LinkedIn and many others that we discussed in this blog while growing managed to create parallel ecosystems of developers, publishers, small businesses, entrepreneurs, and users that are really the base and foundation for those companies business model success.

In short, the turnover those companies make is just the tip of the iceberg of an ecosystem, which is often hard to control.

The Internet, enabled ways for these organizations to involve thousands of publishers, developers, and users, where an organization, generating profits, built a strong distribution platform, thus making it compelling to other key players to participate in the growth of the ecosystem.

At the center of those open, and uncontrollable ecosystems, there is a strong distribution network, controlled by the organization in charge of the platform, that is able to monetize the ecosystem.

Thus, the distribution network is, in many cases, among the most valuable assets a company has in the long run.

Even if that’s expensive to develop, a distribution network is always worth it, because that is how you build a business you can control and a platform where you make the rules of the game.

This is the essence of business platforms !

To finish this up, how can you plan an entry strategy based on the distribution context in which we’re operating? 

Key Insights

• Distribution Channels: A distribution channel is the path a product takes to reach the end customer. It can be direct or indirect and can involve physical or digital channels.
• Distribution Types Database: Various companies have different distribution strategies. Examples include Amazon’s hybrid model, Apple’s hybrid model with carriers, Facebook’s direct digital distribution, Google’s digital vertical integration, Luxottica’s physical vertical integration, and Tesla’s direct physical distribution.
• Importance of Distribution Strategy: Companies often undervalue distribution channels, assuming that a good product will automatically find its way to customers. However, distribution needs to be created through strategic planning and understanding customer needs.
• Types of Distribution Channels: Distribution channels can be categorized as direct or indirect based on the number of steps between the producer and the end consumer. Companies may use a mix of direct and indirect channels to reach their target market.
• Supply Chain vs. Distribution Strategy: While the supply chain focuses on efficiencies in the process of delivering a product, the distribution strategy is customer-centric, focused on creating demand and reaching the target audience.
• B2B, B2C, and Distribution Channels: The distribution strategy may vary depending on the target customer. B2B distribution strategies may involve more intermediaries, while B2C strategies can be more direct.
• Traditional vs. Digital Distribution Channels: With the rise of digitalization, companies need to adapt their distribution strategies to leverage digital channels effectively.
• Distribution Management: Distribution management is usually considered a marketing function, but it can involve sales when dealing with wholesalers or retailers.
• Assessing the Right Mix: Finding the right distribution mix involves balancing speed, control, and the channels that can drive business growth in the long term.
• Distribution as the Most Important Asset: Distribution networks are among the most valuable assets a company can have, as they can create ecosystems that enable business success and control over the platform.

Distribution Channels Types Case Studies

What is distribution.

Distribution is a process of enabling a product or service to be easily accessible to the critical customer and consumer who needs that kind of product and service. Usually, distribution channels can be direct or indirect depending on the distribution strategy adopted by an organization to grow its profits.

What is direct distribution?

In a direct distribution model, a company can get its products directly into the hands of consumers without passing through an intermediary. Think of the case of a company like Apple, which sells its iPhones directly through its owned store thus reaching its key customers.

What is indirect distribution?

In an indirect distribution model, a company can get its products into the hands of the final customers, only passing through an intermediary. Think of the case of a company that manufactures a product that then gets sold by a third-party retailer. Thus the company can’t reach its customers directly.

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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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Food Distribution Business Plan

Free Business Plan Template

Download our free business plan template now and pave the way to success. Let’s turn your vision into an actionable strategy!

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How to Write A Food Distribution Business Plan?

Writing a food distribution business plan is a crucial step toward the success of your business. Here are the key steps to consider when writing a business plan:

1. Executive Summary

An executive summary is the first section planned to offer an overview of the entire business plan. However, it is written after the entire business plan is ready and summarizes each section of your plan.

Here are a few key components to include in your executive summary:

Introduce your Business:

Start your executive summary by briefly introducing your business to your readers.

Market Opportunity:

Food distribution product range:.

Highlight the food distribution products you offer your clients. The USPs and differentiators you offer are always a plus.

Marketing & Sales Strategies:

Financial highlights:, call to action:.

Ensure your executive summary is clear, concise, easy to understand, and jargon-free.

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2. Business Overview

The business overview section of your business plan offers detailed information about your company. The details you add will depend on how important they are to your business. Yet, business name, location, business history, and future goals are some of the foundational elements you must consider adding to this section:

Business Description:

Describe your business in this section by providing all the basic information:

Describe what kind of food distribution company you run and the name of it. You may specialize in one of the following food distribution businesses:

• Wholesale food distributors
• Specialty food distributors
• Frozen food distributors
• Beverage distributors
• Snack food distributors
• Describe the legal structure of your food distribution company, whether it is a sole proprietorship, LLC, partnership, or others.
• Explain where your business is located and why you selected the place.

Mission Statement:

Business history:.

If you’re an established food distribution service provider, briefly describe your business history, like—when it was founded, how it evolved over time, etc.

Future Goals

This section should provide a thorough understanding of your business, its history, and its future plans. Keep this section engaging, precise, and to the point.

3. Market Analysis

The market analysis section of your business plan should offer a thorough understanding of the industry with the target market, competitors, and growth opportunities. You should include the following components in this section.

Target market:

Start this section by describing your target market. Define your ideal customer and explain what types of services they prefer. Creating a buyer persona will help you easily define your target market to your readers.

Market size and growth potential:

Describe your market size and growth potential and whether you will target a niche or a much broader market.

Competitive Analysis:

Market trends:.

Analyze emerging trends in the industry, such as technology disruptions, changes in customer behavior or preferences, etc. Explain how your business will cope with all the trends.

Regulatory Environment:

Here are a few tips for writing the market analysis section of your food distribution business plan:

• Conduct market research, industry reports, and surveys to gather data.
• Provide specific and detailed information whenever possible.
• Illustrate your points with charts and graphs.
• Write your business plan keeping your target audience in mind.

4. Products And Services

The product and services section should describe the specific services and products that will be offered to customers. To write this section should include the following:

Food distribution product range:

Mention the food distribution product range your business will offer. This list may include

• Bakery items
• Packaged goods

Quality measures:

• This may include supplier evaluation & selection, product inspection & testing, temperature control, quality control measures, etc.

Additional Services

In short, this section of your food distribution plan must be informative, precise, and client-focused. By providing a clear and compelling description of your offerings, you can help potential investors and readers understand the value of your business.

5. Sales And Marketing Strategies

Writing the sales and marketing strategies section means a list of strategies you will use to attract and retain your clients. Here are some key elements to include in your sales & marketing plan:

Unique Selling Proposition (USP):

Define your business’s USPs depending on the market you serve, the equipment you use, and the unique services you provide. Identifying USPs will help you plan your marketing strategies.

Pricing Strategy:

Marketing strategies:, sales strategies:, customer retention:.

Overall, this section of your food distributor business plan should focus on customer acquisition and retention.

Have a specific, realistic, and data-driven approach while planning sales and marketing strategies for your food distribution business, and be prepared to adapt or make strategic changes in your strategies based on feedback and results.

6. Operations Plan

The operations plan section of your business plan should outline the processes and procedures involved in your business operations, such as staffing requirements and operational processes. Here are a few components to add to your operations plan:

Staffing & Training:

Operational process:, equipment & machinery:.

Include the list of equipment and machinery required for food distribution, such as refrigerators, vehicles, material handling equipment, packaging equipment, etc.

Adding these components to your operations plan will help you lay out your business operations, which will eventually help you manage your business effectively.

7. Management Team

The management team section provides an overview of your food distribution business’s management team. This section should provide a detailed description of each manager’s experience and qualifications, as well as their responsibilities and roles.

Founders/CEO:

Key managers:.

• It should include, key executives(e.g. COO, CMO.), senior management, and other department managers (e.g. operations manager, customer services manager.) involved in the food distribution business operations, including their education, professional background, and any relevant experience in the industry.

Organizational structure:

Compensation plan:, advisors/consultants:.

• So, if you have any advisors or consultants, include them with their names and brief information consisting of roles and years of experience.

This section should describe the key personnel for your food distribution services, highlighting how you have the perfect team to succeed.

8. Financial Plan

Your financial plan section should provide a summary of your business’s financial projections for the first few years. Here are some key elements to include in your financial plan:

Profit & loss statement:

Cash flow statement:, balance sheet:, break-even point:.

• This exercise will help you understand how much revenue you need to generate to sustain or be profitable.

Financing Needs:

Be realistic with your financial projections, and make sure you offer relevant information and evidence to support your estimates.

9. Appendix

The appendix section of your plan should include any additional information supporting your business plan’s main content, such as market research, legal documentation, financial statements, and other relevant information.

• Add a table of contents for the appendix section to help readers easily find specific information or sections.
• In addition to your financial statements, provide additional financial documents like tax returns, a list of assets within the business, credit history, and more. These statements must be the latest and offer financial projections for at least the first three or five years of business operations.
• Provide data derived from market research, including stats about the industry, user demographics, and industry trends.
• Include any legal documents such as permits, licenses, and contracts.
• Include any additional documentation related to your business plan, such as product brochures, marketing materials, operational procedures, etc.

Use clear headings and labels for each section of the appendix so that readers can easily find the necessary information.

Remember, the appendix section of your food distribution business plan should only include relevant and important information supporting your plan’s main content.

The Quickest Way to turn a Business Idea into a Business Plan

Fill-in-the-blanks and automatic financials make it easy.

This sample food distribution business plan will provide an idea for writing a successful food distribution plan, including all the essential components of your business.

After this, if you still need clarification about writing an investment-ready business plan to impress your audience, download our food distribution business plan pdf .

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Frequently asked questions, why do you need a food distribution business plan.

A business plan is an essential tool for anyone looking to start or run a successful food distribution business. It helps to get clarity in your business, secures funding, and identifies potential challenges while starting and growing your business.

Overall, a well-written plan can help you make informed decisions, which can contribute to the long-term success of your food distribution company.

How to get funding for your food distribution business?

There are several ways to get funding for your food distribution business, but self-funding is one of the most efficient and speedy funding options. Other options for funding are:

• Bank loan – You may apply for a loan in government or private banks.
• Small Business Administration (SBA) loan – SBA loans and schemes are available at affordable interest rates, so check the eligibility criteria before applying for it.
• Crowdfunding – The process of supporting a project or business by getting a lot of people to invest in your business, usually online.
• Angel investors – Getting funds from angel investors is one of the most sought startup options.

Apart from all these options, there are small business grants available, check for the same in your location and you can apply for it.

Where to find business plan writers for your food distribution business?

There are many business plan writers available, but no one knows your business and ideas better than you, so we recommend you write your food distribution business plan and outline your vision as you have in your mind.

What is the easiest way to write your food distribution business plan?

A lot of research is necessary for writing a business plan, but you can write your plan most efficiently with the help of any food distribution business plan example and edit it as per your need. You can also quickly finish your plan in just a few hours or less with the help of our business plan software .

What's the importance of a marketing strategy in a food distribution business plan?

Marketing strategy is a key component of your food distribution business plan. Whether it is about achieving certain business goals or helping your investors understand your plan to maximize their return on investment—an impactful marketing strategy is the way to do it!

Here are a few pointers to help you understand the importance of having an impactful marketing strategy:

• It provides your business an edge over your competitors.
• It helps investors better understand your business and growth potential.
• It helps you develop products with the best profit potential.
• It helps you set accurate pricing for your products or services.

About the Author

Vinay Kevadiya

Vinay Kevadiya is the founder and CEO of Upmetrics, the #1 business planning software. His ultimate goal with Upmetrics is to revolutionize how entrepreneurs create, manage, and execute their business plans. He enjoys sharing his insights on business planning and other relevant topics through his articles and blog posts. Read more

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A Guide to Starting a Wholesale Coffee Distribution Business

Have you thought about starting your own coffee business or opening a coffee shop ? This is a dream for many people, but it’s one that requires capital-especially in relation to seasonality in business . A more budget-friendly option to get into the coffee business is starting a wholesale coffee distribution business. 

As a new business owner , you may consider dropshipping coffee or selling wholesale coffee to retailers. A brick and mortar location requires you to not only secure the right building but also to hire employees such as bar staff and wait staff . 

Selling coffee online doesn’t require you to have the same brick and mortar restaurant operations . It’s possible to conduct such a business and generate revenue through a wholesale marketplace or digital storefront . This is done through product sales and offering a coffee bean subscription or monthly coffee subscription boxes . 

Starting a Wholesale Coffee Distribution Business

When it comes to starting a coffee eCommerce business, there are a few things to keep in mind. There are four factors to consider that will ensure you’re running a wholesale business successfully.

The four factors to consider when starting a wholesale coffee distribution business include: 

• Have a business plan
• Consider coffee cost and wholesale pricing
• Understand your customers
• Obtain all necessary permits and a wholesale license
• Keep it simple

1. Have a Business Plan

Knowing how to write a business plan is crucial before starting any business, especially a wholesale coffee distribution business. Your business plan should be similar to a dropshipping business plan , restaurant business plan , and eCommerce business plan .

A standard business plan for a coffee distribution company should cover a few important topics to ensure success. These include market analysis and marketing information, a financial plan, and the product offering. 

2. Consider Coffee Cost and Wholesale Pricing

Selling wholesale coffee means that you’ll be selling products in bulk quantities. Most of these businesses will have menus that are priced by the pound. Distributors will purchase coffee products and sell them in bulk quantities to retailers at a higher price than what they purchased it for. 

The price will be appealing to retailers, who will later sell it to customers at a higher price, and earn you profit. Learn about wholesale vs retail price , to better understand this concept.

3. Understand Your Customers

Part of successful coffee marketing includes customizing coffee bags, eCommerce packaging , and labels. First, you have to find your niche market and reach out to them in person or digitally. 

Tailoring your product offerings to your niche market is essential. In order to effectively do this, you must keep up with  coffee industry trends . It’s also a smart idea to work with the best coffee roasters near you. 

Build relationships with your customers and local businesses that may be in need of your wholesale products . These include cafés, hotels, office buildings, restaurants, community centers, and hospitals.

4. Keep It Simple

With so many coffee varieties to choose from, the decision-making process may be tough. It’s best to keep things simple when starting off. Choose a couple of coffee blends or origin coffees. These include an espresso blend, decaf coffee, and drip coffee profile. 

By simplifying your product offerings, you’ll be able to save money in different areas of your business such as the packaging and labeling. This will make the bulk shipping and shipping and handling process easier. Look into how to print shipping labels to ensure a quick and easy process while using a thermal shipping label printer .

How to Find a Wholesale Coffee Supplier

Having the right supplier is crucial when running a wholesale business successfully. The coffee beans you get from your supplier will determine the taste of your coffee. 

The three factors to consider when finding a wholesale coffee supplier include:

• Great coffee quality. In order for your coffee products to sell, they must taste good. This starts off with the quality. Your ideal coffee supplier should offer products that fit your roasting and flavor specifications. 
• Quick turnaround time. A way to keep up customer satisfaction is to provide quick deliveries. To do this, your supplier must offer quick turnover times, which means they have a high fill rate . 
• Low MOQ . Most wholesale suppliers set minimum order quantities (MOQs) which refer to the minimum amount of products you have to order. Low MOQs will save you money, and they’re also ideal for new business owners. Learn about economic order quantity ( EOQ ) to minimize business costs. 

Marketing Strategy for Selling Coffee Beans Wholesale

Once you determine the wholesale coffee products you plan to sell and find a supplier, it’s time to discuss your marketing strategy. Outline your marketing strategy within your business plan to minimize confusion. 

Your marketing strategy should include the following three factors:

• Online marketplace and platform
• Brand image
• Creating content

1. Online Marketplace and Platform

Establish the proper online marketplace to sell your wholesale coffee bean products. This may include a B2B eCommerce platform . The ideal marketplace or platform should include a wholesale catalog with your product offerings, a shopping cart feature, and an option to pay. 

It’s essential to work with payment gateway providers and payment processing companies to accept payments online . This will ensure safe payment transactions and provide peace of mind to your shoppers. 

2. Brand Image

Part of starting an eCommerce business involves establishing a solid brand image. Selling products online eliminates the option for customers to try your products before they purchase them. This is why your brand image should resemble what your company believes in and what your product is about.

Articulate the company values into the brand name, logo, packaging, and throughout your website. The goal is to appeal to your customers and give them something to remember. 

3. Creating Content

Online businesses benefit from eCommerce content marketing . With solid website content, you’ll motivate your customers to come back. 

Include the following content on your eCommerce website:

• Written content. Blog posts and sales copy will allow you to establish your brand voice and share your company story. It also provides a chance for you to connect with customers. This will establish trust between the business and the customer and lead to more sales. 
• Product descriptions. Describing your products is essential. Include details about the flavor notes of your coffee products. This will help them choose the right products based on their preferences. 
• High-quality photos. Your website’s digital catalog should include high-quality images of each product, like most eCommerce marketplaces . Incorporate the right eCommerce product catalog design using a catalog creator . This will allow you to include various photos of your products and the packaging. 
• Use of the best SEO practices. The proper use of search engine optimization (SEO) will get your website ranking higher on the search results pages. This may improve website traffic. The best SEO practices include using SEO keyword research , using internal linking strategies, adding quality images, and creating unique website content. Learn about, “ what is eCommerce SEO ?” through SEO books . 

Dropshipping Coffee : 4 Steps to Dropship Coffee 

The COVID-19 pandemic caused many people to start working from home. This meant fewer people went out to their favorite coffee shops to purchase a fresh cup of brew. Now, coffee is one of the best dropshipping products to sell. This means it’s one of the best dropshipping business ideas to consider. 

The four steps to take to start a dropship coffee business include: 

• Choose dropship coffee suppliers
• Find coffee products to sell
• Set up your online marketplace
• Launch your online business

1. Choose Dropship Coffee Suppliers

The drop shipping process includes finding a supplier for the products you want to sell. To do so, you must consider the range of coffee products that the suppliers are offering. Pay attention to order fulfillment fees, delivery times, MOQs, and EOQs. Research how to find dropshipping suppliers to ensure you cover all the bases. 

2. Find Coffee Products to Sell

Being unique in your market is the key to business success. This is also similar to restaurant success . If you’re wondering how to run a wholesale distribution business successfully, the goal is to find a unique selling proposition (see some USP examples ). 

Your USP will allow your business to stand out, which is essential in a competitive and large industry like the coffee industry. For a dropshipping coffee business, your USP may be the name of your brand, the coffee blends you offer, roasting methods, the coffee origin, or the packaging. 

Try to differentiate your business by offering complementary products. Selling an online coffee subscription box is a good starting point, and you might expand by offering milk and dairy options. 

3. Set Up Your Online Marketplace

Look into the different types of marketplaces , including the best marketplace apps , to sell your coffee products on. Pay attention to the customization options that you have with each marketplace. This will allow you to incorporate your brand colors, images, and content. 

4. Launch Your Online Wholesale Coffee Distribution Business 

Once you secure a coffee supplier, stock up on products, and polish your branding, it’s time to get your business started. Launch your eCommerce site and begin marketing your products through eCommerce marketing . 

Be sure to have an eCommerce marketing strategy as it will help you along the way. Such strategies include DTC marketing , B2B marketing , eCommerce email marketing , wholesale marketing , and eCommerce content marketing . 

White Label Coffee vs Private Label Coffee

Before you start your wholesale coffee distribution business, you have to determine whether you want to sell white label or private label coffee. The choice is based on what type of coffee will lead to more customer loyalty and which product will make you stand out from the competition. 

What Is White Label Coffee?

White label coffee refers to coffee products that are created by a manufacturer with the intent to have wholesalers or drop shippers resell the products. For example, a coffee roaster selling its coffee blends to different retailers. Those retailers will then rebrand the coffee blend products through custom packaging and labeling. 

With white labeling, coffee roasters are able to make a consistent and reliable income and branding costs are something they don’t have to worry about. White labeling is an affordable option for retailers because manufacturers don’t have to create new processes for product development. They continue to create the same coffee blends and distribute it to the retailers. 

Advantages of White Label Coffee

When starting your own coffee business, choosing white label coffee products will result in a quick and less-frustrating process. You take care of the sales process while the supplier does the rest. 

Even though the supplier sells the same coffee blend to retailers, you still have access to a high-quality product. In fact, the products are pretested in the market and are proven to be successful. 

It’s common for retailers to see high margins, including a high dropshipping profit margin , when they use white label coffee. Read more about the margin definition to better understand its application in your business.

Disadvantages of White Label Coffee

White label coffee is a cost-effective option, especially for new businesses; however, there are some downsides. There is little room for customization with white labeling since the same product is manufactured each time. This means you may have limitations in terms of coffee flavors, roasting methods, and coffee characteristics. 

What Is Private Label Coffee?

Private label coffee refers to coffee products that are created exclusively for the use and sale of a single reseller. The private label retailers take part in the product development process. 

The costs associated with private label coffee are greater; however, the product is exclusive to the brand and company. This is a significant selling point and is what motivates many business owners to take up private label commerce. 

Many industries, such as clothing, food, and cosmetics, take advantage of private labeling. It’s likely that you’ve come across Target private label , Amazon private label , and Walmart private label products without even knowing it. Read about private label dropshipping and what is private label to better understand the concept. 

Advantages of Private Label Coffee 

Private label coffee allows you to showcase your uniqueness. Retailers have the opportunity to create custom labels and packaging. It also allows for greater inventory control on how much product is produced and how much is in safety stock . 

Manufacturers make brand differentiation easy since there are no competitors with the same coffee product or label. Retailers have complete control over the pricing and marketing efforts. 

Disadvantages of Private Label Coffee

Not all businesses will benefit from private label coffee products. With such products, profit margins may decrease if there are complicated packaging designs. Cost savings may not be high if the purchase volume is less than the MOQ. 

A lot of product customizations may leave you with a product that is difficult to sell. They may confuse or mislead customers. Overall, private label products are risky, but for some businesses, the risk is worth it. 

Wholesale Coffee vs Retail Coffee : Finding a Sales Channel

When starting a coffee distribution business, it’s likely that you’ll choose to go into either retail or wholesale sales channels. Businesses distribute products through retail sales channels and profit from products that are sold directly to consumers. Those that use wholesale sales channels make profits by selling their products in large quantities to retailers at low prices. 

The right sales channel for a business will depend on the goals and sales strategies they plan to use. Ideally, the sales channel should align with the company’s business objectives. 

What Is Wholesale Coffee vs Retail Coffee?

Wholesale coffee is the distribution of bulk quantities of coffee from the roaster to the retailer. Retail coffee is the distribution of coffee products directly to the consumer. 

In terms of wholesale coffee, the retailers are the middlemen, and they sell coffee to consumers at higher prices than what they paid for. These retailers include cafés, bakeries, and grocery stores. 

Retail coffee transactions often occur in brick and mortar locations as well as in eCommerce stores. One of the many benefits of choosing to sell through a retail sales channel is the direct interaction between the consumer and the roaster. Look into 

Wholesale coffee tends to have more financial stability than retail coffee. This is primarily due to the number of items being sold. Wholesale items are sold in bulk whereas retail items aren’t. 

Read about direct to consumer sales and understand the direct to consumer business model to better understand how retail sales channels work. Be sure to also look into DTC trends and popular DTC brands .

Our expert, award-winning staff selects the products we cover and rigorously researches and tests our top picks. If you buy through our links, we may get a commission. Reviews ethics statement

• Home Energy & Utilities

Compare Business Electric Rates in Texas

Business electricity rates are cheaper than residential rates. Here's what you can expect for your Texas business.

• 2013 Media Award Winner Issued by Press Club Long Island

The Dallas skyline. 

The old cliche that "everything is bigger in Texas" seems to apply to energy choices too. 

Texas is deregulated , meaning most residents there have choice in energy providers -- more than 130 different retail electric companies to be exact, according to the Public Utilities Commission of Texas.  

The Texas energy choice market is unique but complicated. Some experts say it brings strong competition, lower prices and a wide variety of plans and unique billing options. Others believe Texas is "deregulation on steroids" -- meaning too many options and consumers can be inundated by choices leading to paying more for electricity.

We'll help you find the best electricity rates in your area

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"The complaints are usually about the clunkiness, the complexity, the sheer amount of choices," said Michael Kraten , director of accounting program initiatives at University of Houston's C.T. Bauer College of Business. "It's the same people who complain when they walk into a cookie aisle in a store. They say, 'I just want a package of Oreos,' and they find five dozen different options and no clear way to compare between them. It's a valid complaint. Yet, there is a valid reason for why the options are there."

While both arguments may be true, if you live in Texas or run a business there, the fact is, you have no choice but to make a choice in energy providers. 

Looking for commercial and business rate plans?

Get a free customized rate quote today.

Businesses and commercial properties can avoid overpaying for energy with a customized rate plan that is tailored to your property's usage profile. Start saving on your utility costs today with a free commercial energy consultation.

*SaveOnEnergy and CNET are both owned by RedVentures. We may receive a commission if you get a quote or make a purchase through this link. 

Comparing business and residential electric rate in Texas 

In a deregulated energy market, consumers can choose who provides the energy that powers their homes or businesses. While you're still locked into a utility in deregulated markets, theoretically the amount of energy providers competing for your business could lead to getting a better deal, although consumers must do their homework or risk paying more, as mentioned above.

According to the latest available data from the U.S. Energy Information Administration (EIA) , the average Texas commercial electricity rate is 8.85 cents per kilowatt-hour , lower than the national average of 12.39 cents per kWh. In comparison, the average Texas residential electricity rate is 14.58 cents per kWh , also lower than the national average of 15.73 cents per kWh.  

The reasons why Texans enjoy lower rates is clear: Unlike in many states that aonly llow a single utility to sell energy, the Lone Star State sees energy businesses competing for consumers. That means savings for consumers. Of course, it also means bad actors who may take advantage of consumers who don't read the fine print. As businesses typically consume more power than homeowners, savvy business owners and executives could use their leverage to work out better deals.

The average Texas commercial electricity rate has been consistently lower than residential rate for the last 20 years. 

Factors impacting business electricity rates in Texas

The two biggest differences with commercial energy rates versus home energy rates are the cost and enrollment process.

Shopping for a home electricity plan is fairly self-sufficient. In Texas, that means logging onto a comparison site like PowerToChoose or SaveOnEnergy , entering your ZIP code, then choosing between the options available in your area based on rate, type of plan, type of energy (such as renewables) and other factors. Then enrolling online or by phone. 

The higher energy consumption for a business is why rates are cheaper -- and also complicates the enrollment process. "The issue is not just the gross amount or absolute amount of power, but also when you need it, and what structure of price you've agreed to," Kraten said. "Those are all factors that are related to supply and demand that also affect what you would pay."

These are the factors that influence the cost and type plan you choose for a business or commercial property.  

Type of business

There's a big difference between a factory with electricity-run machinery versus a professional services office with most of its electricity coming from computers and lighting. The latter uses less energy, whereas the former, depending on its size, consumption and load factor could negotiate a deal for better rate and terms due its higher consumption. 

Consumption

Most businesses will use more energy than a home. Typically, the more energy predicted to be used, the more negotiating power you may have to get a cheaper rate per kilowatt hour . "If you're running a business, you take certain responsibilities on your shoulders to a greater extent," Kraten said. "As is the case with most other purchases that such businesses make, they have enough market clout that they can strike the round deal."

Load factor

When a business enrolls in an energy program, it will be bucketed into three categories: high, medium or low load factor. Each category describes how much demand your business is expected to pull from the grid and will also influence your overall costs in two ways:

High, medium or low load factor is how power companies plan how much energy it will need and when. The higher the load factor, the lower the demand, and therefore a cheaper price per kilowatt-hour. 

Load factor will affect how much a business will pay in demand charges which are separate from the rates per kilowatt-hour itself. A higher load factor, for example, means lower demand and will yield lower demand charges -- a tariff placed by a utility or ERCOT and is classified by its forecasted demand . 

High load factor: A business that uses energy efficiently, and in a predictable and consistent flow. An example of a high load factor-low demand is a grocery store or a school with long predictable hours of operation. This business type tends to get the cheaper energy rate and lower demand fees. 

Medium load factor: A business that has inconsistent demand where there are periods of high and low usage. Retail stores and health care offices may be medium factor and medium demand since they don't use a ton of electricity to operate. 

Low load factor: Uses power in high doses over short periods of time inconsistency. This type of load factor required high demand from a grid due to its unpredictability. Small businesses such as restaurants and houses of worship tend to be classified with low load factor and high demand since hours of operation are periodic and not consistent. Small businesses with low load factors tend to pay more in demand charges. 

This is an important factor across the country, but even more so in Texas, which is "so large and diverse, that it's a microcosm of the country," Kraten said. Each region of Texas serves different business interests, such as energy in Houston, agriculture in Dallas or technology in Austin. Therefore, Kraten said, energy providers in each region will go lengths to accommodate certain types of businesses.

Each regional distribution utility will come with its own taxes, demand fees and delivery costs as well. For example, your commercial rate for the supply of energy may be one price, but the overall costs of your energy may vary if your business is located in the Oncor versus Centerpoint utility service areas. 

Length of contract

Typically, the shorter the contract, the cheaper the rates. Longer contracts usually come with higher rates. Kraten said market factors cause electric companies to make long-term assumptions and calculate those risks in the rate itself. Consumers will pay more for the longer commitment to a certain rate price in a "catastrophically uncertain world," Kraten said. 

Market factors

The overall US or global economy can influence energy rates. The Russian war on Ukraine , for example, shifted oil and natural gas prices, which in turn has global implications on energy costs. Less obvious factors like the energy intensive crypto mining where it's surprising energy demand may be driving up energy costs. 

Government regulations

A state government entity could influence the overall cost of electricity if it raises or lowers utility fees and state tariffs. For example, the TDU fee -- the cost to deliver the electricity -- is regulated by the Public Utility Commission of Texas . 

Types of electricity plans for business in Texas

Fixed-rate plan.

These types of plans offer energy consumers some predictability. The price per kilowatt-hour is known in advance and remains mostly flat over the course of a contract. For businesses that need energy throughout the day and expect consistent bills, fixed-rate plans are worth considering.

Variable rate plan 

For business owners who want to go with the flow, variable rate plans come with no contract commitment and charge based on market conditions. These rates fluctuate -- typically monthly -- based on seasonal market shifts. Electricity may be more expensive in the summer and winter when demand is higher while businesses and homes are using heating and cooling. And conversely, rates tend to be cheaper in the fall and spring when less strain and demand takes place. 

Renewable energy plans

Texas is a big player in the renewable energy space . A business could choose a "green" plan where some or all of the electricity comes from solar , wind or hydro power. 

Businesses could opt into a REC program (renewable energy certificates) to showcase its green initiative. 

Time-of-use plans

Similar to variable rate plans, time-of-use plans mean that energy prices change depending on the time of day. Energy could be more expensive in the daytime when demand is high, fall during lunchtime, rise again then lower at night when demand shrinks. If your business can adjust the time it uses energy, it could lead to savings.

Demand response programs

Under demand response programs , energy providers will use financial incentives to encourage the shifting of electricity usage based away from peak demand hours. If a business elects to participate in a demand response program, it may be financially compensated for a high demand period or during a conservation event . 

Indexed rate plans

These plans can be similar to variable plans, in that energy prices can change. But instead of prices being based on demand, indexed rate plans are connected to a commodity index. Indexed rate plans are complicated and time consuming. Be sure to understand the math equations at work before signing up for these plans.

How to find the best electricity rate for your business 

If you want to get the best electric rate for your business, the first step is understanding how you use electricity. Break down your past year's energy usage by pouring over your bills and see what times of day you need electricity the most. Create a 12-month historical lookback and a 12-month prediction looking forward. With this information in hand, a commercial energy consultant can guide you into a plan that best suits your business consumption profile. 

Ask for multiple quotes with differing contract lengths from a few different providers. Ask for quotes in writing so you can see if others will price match. 

Why are electric rates for business lower than residential rates?

Electric rates are lower for businesses than residences because the commercial properties typically use more electricity, have differing load factors and demand profiles. When you buy in bulk, the price per unit typically drops. But you could pay more in demand charges if your usage is inconsistent. 

Why can't I shop for business rates online like I can with my home?

Because businesses typically consume more power than homes, there are too many factors at play to allow them to shop for rates online. Use this inquiry form to get connected to a business or commercial energy specialist for a free rate quote. 

Deregulated Energy Guides

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See how the Key Bridge collapse will disrupt the supply of cars, coal and tofu

The port of baltimore is the top port in the nation for automobile shipments.

The collapse of the Francis Scott Key Bridge in Baltimore on Tuesday cut off access to much of the city’s port — causing a suspension of vessel traffic that will disrupt a key trade lane and threaten to further tangle already-stressed supply chains.

The Port of Baltimore was the 17th largest in the nation by total tons in 2021 and an important artery for the movement of autos, construction machinery and coal. It handled 52.3 million tons of foreign cargo worth nearly $81 billion in 2023, according to Maryland data, and creates more than 15,000 jobs.

Top 10 imports and exports to the Port

of Baltimore in 2023

2023 total: $59B

electronics

commodities

2023 total: $22B

Iron, steel

Seeds, grains,

fruits, plants

Air and space

craft, parts

Coal, oil and

natural gas

Note: not seasonally adjusted. Vehicles excluding railways

and tramways. Nickel, aluminium, paper and wood include

derivatives of those commodities

Source: Census Bureau

Top ten imports and exports to the Port of Baltimore in 2023

Electronic machinery

and electronics

farmwork and

construction

Iron and steel

spacecraft, parts

Note: not seasonally adjusted. Vehicles excluding railways and tramways. Nickel, aluminium,

paper and wood include derivatives of those commodities

spacecraft,

bedding, lights

Note: not seasonally adjusted. Vehicles excluding railways and tramways. Nickel, aluminium, paper and wood include

On Tuesday, the Port of Baltimore said that vessel traffic would be suspended in and out of the port until further notice, but trucks would still be processed in its terminals.

“Baltimore’s not one of the biggest ports in the United States, but it’s a good moderate-sized port,” said Campbell University maritime historian Sal Mercogliano. It has five public and 12 private terminals to handle port traffic.

North Locust

Point Marine

Ports and terminals

Baltimore Port

Truck Plaza

Seagirt Marine

Dundalk Marine

Shipping channels

CSX Coal Pier

Francis Scott

Hawkins Point

Marine Terminal

“It does cars, it does bulk carriers, it does containers, it does passengers.” said Mercogliano. “So this is going to be a big impact.”

Baltimore’s the top port in the nation for automobile shipments, having imported and exported more than 750,000 vehicles in 2022, according to the Alliance for Automotive Innovation, an industry group.

About three-quarters of the autos that travel through the port are imports, dominated by big-name brands, including Mazda and Mercedes-Benz. Most of the top companies have enough inventory sitting on U.S. dealer lots that any immediate impact on supply is unlikely, said Ambrose Conroy, chief executive of the consulting firm Seraph.

“It’s too early to say what impact this incident will have on the auto business, but there will certainly be a disruption,” said John Bozzella, president of the Alliance for Automotive Innovation.

The port ranked second in the country for exporting coal last year, according to the state of Maryland. But it’s not a huge global supplier of thermal coal, and the disruption can likely be made up by replacements from Australia or Indonesia if needed, said Alexis Ellender, lead analyst at global trade intelligence company Kpler.

Baltimore is also a niche port for the soybean trade, focusing mostly on high-value soy used in tofu, miso, tempeh and organic products, according to Mike Steenhoek, executive director of the Soy Transportation Coalition. Most of those exports are destined for Asia, but Steenhoek doesn’t expect a big spike in tofu prices because several other U.S. ports also ship this sort of soy, including Norfolk, Va., Savannah, Ga. and Charleston, S.C.

All East Coast ports have become more important in recent years as the United States attempts to boost its trade with friendly nations and reduce geopolitical risks related to trade with China, which generally happens via West Coast ports, said Tinglong Dai, a Johns Hopkins Carey Business School professor and expert on global supply chains.

Baltimore port’s suspension is “one more disruption in an already-stressed system” for the global supply chain, said Abe Eshkenazi, chief executive of the Association for Supply Chain Management. Cargo will now have to be rerouted to other ports, which means figuring out where there is enough capacity to move things.

East Coast ports and shipping density

Ship traffic

Philadelphia

of Baltimore

5th-largest port

on the East Coast

for foreign trade

Newport News

Morehead City

East Coast ports

and shipping density

PENNSYLVANIA

The Port of Baltimore

5th-largest port on the

East Coast for foreign trade

Coal shipments will need to be rerouted to other ports, Kpler’s Ellender said. And Ryan Petersen, chief executive of the logistics company Flexport, posted on X that the company currently has 800 containers on a slew of ships heading for the port that will need to be rerouted, likely to Philadelphia or Norfolk.

The biggest problem Steenhoek sees from Baltimore’s shuttering is the knock-on effect to other ports. Many ships stuck in the port were destined to make stops at other U.S. ports to load and unload goods before heading overseas, a complicated logistical dance now scrambled by the bridge collapse.

“It just shows how you throw a wrench in the supply chain and the impact is not just confined to that one port,” Steenhoek said.

Tim Meko, Justine McDaniel and David J. Lynch contributed to this report. Editing by Kate Rabinowitz and Karly Domb Sadof.

Baltimore bridge collapse

How it happened: Baltimore’s Francis Scott Key Bridge collapsed after being hit by a cargo ship . The container ship lost power shortly before hitting the bridge, Maryland Gov. Wes Moore (D) said. Video shows the bridge collapse in under 40 seconds.

Victims: Divers have recovered the bodies of two construction workers , officials said. They were fathers, husbands and hard workers . A mayday call from the ship prompted first responders to shut down traffic on the four-lane bridge, saving lives.

Economic impact: The collapse of the bridge severed ocean links to the Port of Baltimore, which provides about 20,000 jobs to the area . See how the collapse will disrupt the supply of cars, coal and other goods .

Rebuilding: The bridge, built in the 1970s , will probably take years and cost hundreds of millions of dollars to rebuild , experts said.

• Baltimore bridge collapse: Crane arrives at crash site to aid cleanup March 29, 2024 Baltimore bridge collapse: Crane arrives at crash site to aid cleanup March 29, 2024
• Officials studied Baltimore bridge risks but didn’t prepare for ship strike March 29, 2024 Officials studied Baltimore bridge risks but didn’t prepare for ship strike March 29, 2024
• Baltimore begins massive and dangerous cleanup after bridge collapse March 28, 2024 Baltimore begins massive and dangerous cleanup after bridge collapse March 28, 2024

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Rachel Reeves the chess player has an eye on the economic endgame

The shadow chancellor is often criticised for her centrist positions, but Labour’s plan for a long-term rescue is a vital difference between the parties

W hen preparing to become Labour’s chancellor in 1964, James Callaghan used to go up to Oxford for economics lessons at Nuffield College. The present shadow chancellor, Rachel Reeves, is already steeped in economic knowledge, including that of the UK’s economic history, as her recent Mais lecture at Bayes business school made clear .

I was amused by some of the pre-lecture media speculation that Reeves might express her admiration for Margaret Thatcher. On the contrary, she let it be known, in an aside not in the printed text, that distaste for Thatcherism was one of her motives for going into politics.

It is now a commonplace that the wounded chickens of Thatcherism are coming home to roost. It is a myth that Mrs Thatcher injected a new entrepreneurial dynamism into the British economy: whole sections of manufacturing industry were damaged or even destroyed by her early flirtation with what I dubbed “ sado-monetarism ”. In the end, Thatcher resorted to membership of the European single market in 1986 as a means of attracting crucial overseas investment from countries such as Japan. These valued their access to the wider European market from a safe base in the UK.

Alas, thanks to the all too successful campaign run by the egregious Nigel Farage and his predecessors, the safe base was removed by the ill-conceived referendum of 2016.

One of the many benefits of our membership of the EU was steadily tightening anti-pollution rules – which no longer apply , as the scandalous dumping of raw sewage into our rivers reminds us.

The damage resulting from the chickens of deregulation coming home to roost is all around us. The scale of the problems facing a putative Labour government is so manifest that Keir Starmer and Reeves lose no opportunity to warn that, if elected, it will take them two terms to repair the damage .

Starmer and Reeves are doing their best to shake off any echoes of Corbynism and to woo the City and big business. They are desperate not to diminish their impressive lead in the polls. Reeves’s emphasis on the importance of “fiscal rules” leads many people to wonder whether there is any significant difference between what they offer and the present government’s approach.

Well, her Mais lecture provided a welcome answer. While wanting to have strict rules about balancing current expenditure with tax receipts, Reeves recognises that investment which brings benefits in the long term does not have to be paid for in one year! The canard, promoted by too many Tory politicians, that capital expenditure must be balanced by taxation year-by-year is one of the reasons why the UK has underinvested for more than a decade, resulting in what my old friend the late Prof JK Galbraith famously described as “public squalor”.

Contrary to what the pre-Keynesian brigade still argue, public sector investment does not land future generations with the cost: it lands them with the benefits.

It is interesting that the former top civil servant at the Treasury Lord Macpherson has said that the financial constraints facing the next government may not be as severe as widely feared. He ought to know, and his qualifications for fiscal responsibility are second to none.

Reeves places great emphasis on long-term investment. This will be a necessary condition of a rescue plan for this economy. But – I knew, gentle reader, that you were waiting for this – we also need to remove the trade barriers that have increasingly been restricting growth since Brexit .

Having criticised the inhibitions on investment that have characterised the 14 years of government since 2010, Reeves added: “A rushed and ill-conceived Brexit deal has brought further disruption, with the Resolution Foundation estimating that new trade barriers are equivalent to a 13% and 21% increase in tariffs for our manufacturing and service sectors respectively, and the OBR finding that long-run GDP is expected to be 4% lower.”

So what will a Labour government do about it?

If it wins handsomely, the party can stop being so timid about the “red wall” voters who were conned into voting for Brexit. For sustained growth we need the investment and reduction in trade barriers that rejoining the EU would facilitate.

I find Lord Mandelson’s view that our former EU partners would not wish to engage with a UK request to rejoin seriously defeatist. We may be on the verge of war with Putin’s Russia. The EU needs us back.

On a lighter Easter note, I like the story, told by herself, that Reeves, a junior chess champion, once cheekily asked the great Russian grandmaster Garry Kasparov for a game. When one of her aides said it was a bad idea because she had another appointment, Kasparov apparently said: “This won’t take long.” It didn’t.

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Biden Suggests a Bigger Federal Role to Reduce Housing Costs

A new report focuses on the prolonged struggle to build affordable housing across America and suggests federal incentives to help.

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By Jim Tankersley and Conor Dougherty

Jim Tankersley covers White House economic policy. Conor Dougherty has covered housing policy for more than a decade.

Economists in the Biden administration are calling for more aggressive federal action to drive down costs for home buyers and renters, taking aim at one of the biggest economic challenges facing President Biden as he runs for re-election.

The policy proposals in a White House report being released on Thursday include what could be an aggressive federal intervention in local politics, which often dictates where homes are built and who can occupy them. The administration is backing a plan to pressure cities and other localities to relax zoning restrictions that in many cases hinder affordable housing construction.

That recommendation is part of a new administration deep dive into a housing crisis, decades in the making, that is hindering the president’s chances for a second term. The proposals, included in the annual Economic Report of the President, could serve as a blueprint for a major housing push if Mr. Biden wins a second term.

The report includes a suite of moves meant to reduce the cost of renting or buying a home, while encouraging local governments to change zoning laws to allow development of more affordable housing.

“It’s really hard to make a difference in this space, in this affordable housing space, without tackling land use regulations,” Jared Bernstein, the chairman of the White House Council of Economic Advisers, said in an interview.

Mr. Bernstein added that administration officials believed many local leaders were encouraging a bigger federal role in zoning reform — which can help override objections from local groups that oppose development. “I feel like we’re kicking through more of an open door now than we ever have before,” he said.

The report is full of statistics illustrating why housing has become an acute source of stress for American families and an electoral liability for Mr. Biden.

The administration has acknowledged that it has limited power over local zoning rules, which tend to dictate the design and density of homes in particular neighborhoods. Most of the president’s recommendations for expanding supply involve using the federal budget as a carrot to encourage local governments to allow more building — including adding low-income housing and smaller starter homes.

Such policies are unlikely to be put into law this year, with an election ahead and Republicans in control of the House.

But the focus on housing, and the endorsement of a comprehensive set of policies to increase its supply and affordability, could serve as a blueprint for a potentially bipartisan effort on the issue if Mr. Biden wins re-election. It could also add momentum to a housing reform movement that is well underway in state legislatures around the country.

The report documents how, over the past decade, home prices have significantly outpaced wage growth for American families. That has pushed ownership out of reach for middle-income home shoppers and left lower-income renters on the brink of poverty.

A quarter of tenants — about 12 million households — now spend more than half their income on rent. Prices are so high that if a minimum-wage employee worked 45 hours a week for a month, a median rent would consume every dollar he or she made.

Behind all this, the report said, is a longstanding housing shortage. The lack of housing has become a rare point of agreement among Democratic and Republican lawmakers.

The shortage is the product of decades of failing to build enough homes, a trend that worsened after the 2008 financial crisis. It has been exacerbated by the rising cost of construction along with the many local zoning and land use rules that make housing harder and more expensive to build. These rules also limit what kinds of units can go where, for instance by making it illegal to build apartments in single-family neighborhoods.

The lack of affordable housing particularly hurts lower-income families and couples starting out. Millions of lower-cost apartments have essentially disappeared over the past decade, either through rising rents or by falling into disrepair. At the same time, smaller and lower-cost “ starter homes ” are a shrinking share of the market.

Over the past several years, a bipartisan group of legislators in both red and blue states have pushed dozens of state laws to limit cities’ control over development. The report cheered them and noted the administration’s efforts to encourage such reforms, including the Housing Supply Action Plan , which was released two years ago.

Mr. Biden has focused heavily on housing in recent weeks, in part to show voters he is fighting to lower one of their major monthly costs. Privately, his aides have expressed hope that Federal Reserve interest rate cuts this year will drive down mortgage rates and possibly home prices, if a new supply of homes hits the market in response.

Publicly, Mr. Biden has seized on the initiative, calling on lawmakers to pass big federal investments in housing supply and tax credits for people buying homes.

“If inflation keeps coming down — and it’s predicted to do that — mortgage rates are going to come down as well, but I’m not going to wait,” Mr. Biden said on Tuesday in Las Vegas. “I’m not going to wait.”

Jim Tankersley writes about economic policy at the White House and how it affects the country and the world. He has covered the topic for more than a dozen years in Washington, with a focus on the middle class. More about Jim Tankersley

Conor Dougherty covers housing and development, focusing on the rising costs of homeownership. He is based in Los Angeles. More about Conor Dougherty

A third of Gen Z and millennial homebuyers plan to use family money for a down payment amid sky-high housing costs

• More than a third of Gen Z and millennial homebuyers anticipate their families to help with the cost, Redfin says. 
• Younger Americans face bigger financial hurdles to buying a home compared to their parents' generation.

A new group of nepo babies is emerging through the country's housing affordability crisis. 

Over one-third of prospective Gen Z and millennial homebuyers expect their families to help cover the down payment for a home purchase, according to a Redfin-commissioned survey of 3,000 people in the US.  

Taking a closer look, roughly one in six people under the age of 43 said they'd tap into their family inheritance to pay the up-front cost, and 13% said they planned to live under their parents' or other family members' roof. 

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It's worth noting that only 18% of millennials leveraged a family cash gift for their down payment in 2019, though this number jumped to 23% by 2023 as the country grappled with all-time high median home prices as well as multi-decade highs in the 30-year mortgage rate. 

Nearly half of Gen Zers and millennials say they aren't keen on buying homes soon due to sky-high prices. About a third struggle to save for a down payment, while others blame steep mortgage rates for keeping them sidelined. 

"Nepo-homebuyers have a growing advantage over first-generation homebuyers. Because housing costs have soared so much, many young adults with family money get help from Mom and Dad even when they have jobs and earn a perfectly respectable income," said Redfin chief economist Daryl Fairweather. 

Even though lots of young Americans are pulling in decent income, with 60% able to stash money away for a house and 39% eyeing side hustles, they're still spooked by the whopping 40% spike in home prices since before the pandemic. 

"The bigger problem is that young Americans who don't have family money are often shut out of homeownership. Many of them earn a perfectly good income, too, but they aren't able to afford a home because they're at a generational disadvantage; they don't have a pot of family money to dip into," Fairweather said. 

The housing crisis also widens wealth gaps in America, leaving many younger people struggling to keep pace with more privileged peers and shutting them out of a significant source of wealth accumulation. 

"The American Dream is just as much about class mobility as it is the home with a white-picket fence, and the housing affordability crisis has made both elements of the dream harder to attain," she added. 

These days, in order to afford the median-priced home in the US, buyers need to earn $114,000 annually , 35% more than the median household income of $84,072, Redfin said in a separate report this week. 

Watch: Millions of homes could flood the US housing market thanks to boomers

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