Distribution Startups – The Key Considerations

Guidelines for Starting a Distribution Business

A lot of people start a business without thoroughly thinking through all of the necessary elements of success.  The result: they don’t achieve the results they anticipated and perhaps may even face total failure.  While starting a distribution business is not easy, and there is no guarantee of success, you can eliminate a lot of headaches and improve your chances of becoming an “established business” if you follow some simple guidelines:

Differentiation – Make sure you are offering something different.  As it is often hard to compete on price with existing firms in the area differentiation often involves better customer service.  Service areas include:

  • Carrying Special Products – Are there items you can stock that appeal to a specific customer or small market segment?   Carrying a few specialized products can capture other business from a customer.  And because these items are not stocked by a lot of other distributors they are probably less price competitive.  However if you are carrying products for a certain customer be sure they are buying the product from you.  Use the report writer in your computer system produce a monthly report of customer-specific items that have had no sales within the previous 30 days.  Determine why customers aren’t buying these items from you and take action to increase sales.
  • Free and Prompt Delivery – Many smaller businesses do not have the personnel or time to go shopping.  Delivering products to their doorstep during normal business hours many give you a leg up on the competition.  Providing delivery also allows you to locate your business in a less expensive area.
  • Knowledge Always Available – Be an expert on the products you stock.  Be able to explain differentiations between similar products, how retailers can best market the items and optimizing the end users experience (which helps generate repeat sales).
  • Be willing to provide “value added” services. Anyone can deliver a product.  Is there a unique service (packaging, modification, assembly., etc.) you can provide for the customer that will differentiate you from the competition?

Effective Advertising – Discover where your potential customers look for information and sources for products.  Don’t skimp on your web site design or utilization of social media.  Today it is easy and fairly inexpensive to maintain an impressive presence on the Internet.  But also get creative. Do things that your competitors don’t do.  For example, one of our clients markets high end foods to restaurants.  They invite chefs to a breakfast (they are usually busy during lunch and dinner) once a month to demonstrate how new items can be incorporated into their menus.  These have become social events that drive sales and “tie” the chefs to our client.

Watch Your Costs – It is expensive to start a business.  The costs can easily get out of control.  Before buying or investing in anything ask yourself these questions:

  • Can I effectively serve customers without this purchase?  Don’t make investments to feed your ego.  If you are successful there will be ample time to make these purchases in the future.
  • How will this purchase directly grow my business?  How long will it take for these increased sales to pay for this specific expenditure?  If something won’t pay for itself within a year it probably is not a wise investment.
  • Is there a less expensive model that will serve the same purpose?  For example, can you purchase used rather than new shelving?  Even considering the cost of a can of paint used shelving (or vehicles, computers, warehouse equipment, etc.) can provide the functionality you need at a much lower cost.

Set Definitive Goals – Set goals for sales, profits, inventory turnover and increasing your customer base.  At the end of every month compare your results to these goals.  Don’t be afraid to modify your business plan if results differ from what was expected.  As you gain experience you will learn what works and what doesn’t work in your business environment.  But understand that it will take time (often up to a year) for your business to show a net profit.

Sixteen years ago I started a business.  The first several months were scary and I experienced a number of sleepless nights.  But we stuck to our plan by differentiating ourselves from current competitors, effectively advertising our services to potential customers, watching every dollar we spent and continually evaluating our results.  We have been successful.  With a good plan and perseverance you can join us as you help grow the economy.

Related Posts: