For companies and entrepreneurs that manufacture products, wholesale distribution is often a highly desired goal. We have seen this over and over again on hit shows such as the Shark Tank and Dragon’s Den. Business start-ups and more established brands and companies try to get an investment and partner with a “Shark” or “Dragon”. Often, it is less about the investment, but more about the wholesale distribution tips and opportunities.
Wholesale distribution is not just for the manufacturers. Many brands that we know of today are marketers and distributors, but not necessary the manufacturers. In various industries, the manufacturing is often contracted out by the brand. In other words, many types of companies wholesale and distribute product lines to increase product sales. The wholesale distribution business is all about the margins, between the purchase or manufacturing price of the product and the selling price. The larger the spread is the larger the profits are for the business.
Starting a Wholesale Distributorship
There are about 300,000 distributors in the United States, representing around $3.2 trillion in annual revenues. There are only around 2000 distributors in the US that have revenues greater than $100 million. The business landscape with wholesale distribution is still highly fragmented, compromised of many small, private, and independent companies.
This is all good news for start-ups and entrepreneurs looking to launch a wholesale distribution business. Some sectors are much more saturated than others. Individuals and companies should do their due diligence prior to moving forward and making significant investments. Business consulting services are often a great way to gain further knowledge and understanding, to avoid costly mistakes and pitfalls.
Wholesale Distribution Customers
For any company and brand that wants to distribute products via wholesale, there will be choices of customers. Often depending on type of product, the desired target market will vary given the niche. For example, a natural skin care product line may target WholeFoods retailer and other more natural oriented retail opportunities.
Retail businesses are a main target with wholesale distribution. This includes organizations such as grocery stores, boutiques, department stores, independent retailers, smaller and global retail chains such as Target. The other main target for wholesale distribution is Retail Distributors. These are companies that have specialized in supplying other retailers with products. Larger retailers, most of the times only order from these distributors. Thus, they become a main sales target when it comes to wholesale distribution.
Distribution Pricing Formula
Entrepreneurs and businesses that want to wholesale and distribute product lines should work out their pricing before they approach any buyers and distributors. Most professional buyers in the industry will expect pricing sheets completed. To succeed distributing via wholesale, the pricing points must make sense. For example, if the cost to the manufacturer/business is $5 to make or produce the product, a 100 percent markup should be added for distributors, so the distributors buy it at $10. The wholesaler would double the cost and sell it for $20. Adding a 400 percent markup from manufactured price to the wholesaler’s customer.
To succeed with wholesale distribution, the pricing points have to be set so that there is enough margin for everyone in the distribution chain and still remain competitive with the suggested retail price for the consumers.
Keeping Product Inventory
How much inventory a business or entrepreneur should keep depends heavily on what is being sold. Products that expire have to be handled differently than products that have no expiration dates. Also, how easy it is to store products, weight, size, a lot goes into consideration when keeping product inventory. This includes how quickly new products can be produced, expected sales, and how products will be supplied (shipped).
The largest mistake often made by companies and brands is developing a larger inventory than what is really needed. This can be even more challenging for products that expire. A business should always avoid having investments sit around as inventory. Start-up ventures especially should begin with smaller inventory levels to avoid expansive start-up costs and potential loss of inventory.
To get help, work with experts and professionals when starting out or wanting to expand. Business consulting services are a great temporarily support when trying to reach certain goals or get started. A business consultant can quickly shed light to issues and help outline requirements. Many offer a free consultations and start-ups as well as anybody who is entering the wholesale distribution business should take advantage of it.