Starting a new business has its challenges. Today, most new business ideas are about getting a franchise or setting up your own startup. However, we tend to overlook one of the oldest and most profitable businesses -- the distribution business. It is one of the smartest money making small business ideas online.
With the internet becoming the new and convenient business channel, more and more people are looking for big or small business ideas to earn profits. After all, it's a unique and innovative idea that guarantees successful online businesses. The online distribution business is no exception.
The entire business chain can broadly be classified into three steps. The first step is the product creation by manufacturers and the final step is where the product is sold to the customers by retailers. In between manufacturers and the retailers come distributors. Distributors play a vital role in the cycle. They are the ones who connect sellers and buyers.
The importance and existence of the distribution business can be linked to the era of the barter system. The business holds the same significance in the digital era. The online distribution business is an essential element of the business cycle. In a highly digitised market, safe and reliable movement of products forms the backbone of successful online businesses.
Role of the Online Distribution Business
The internet has transformed the entire world into one big global market. Today, a buyer living in the USA can buy clothes from a Europe-based designer company from the comfort of his/her home. With such a vast geographical area to cover, the producer needs to have lots of resources. A small scale business might lack the resources and capital to sell their goods all across the country. An online distribution business helps such companies to reach their buyers through their distribution channels. An online distributor helps the clients cover more areas for their business and increase the efficiency and distribution speed.
How to start an online distribution business?
If you are excited to start a new business and a distribution business tops your list of new business ideas, then continue reading. We have created a step-by-step guide on starting a new online distribution business to help your startup become the best online business.
1. Select the right business depending on your experience or goals.
Online distribution business can be of two types: wholesale merchant distributors and retail distributors. Wholesale distributors purchase goods from the manufacturers and sell them to other distributors or retailers. On the other hand, retail distributors buy goods from manufacturers/wholesalers and sell them directly to customers. Depending on your interests and experience, select the business that suits your needs.
2. Select the product
Online distribution business offers a wide variety of products to select from. You can either decide to deal with a single product or think of small business ideas based on multiple products. While taking the decision, it's advisable to look for the following:
- Your interest in the product.
- Niche market
- Availability and accessibility of the product in the market.
- To get your name on the list of successful online businesses, the right selection of the product is crucial.
3. Create a detailed business plan
Once you have selected your product, create a business plan that covers your short and long-term goals. A good business plan covers all the aspects of your new business ideas and acts as a guide to become a successful distribution business.
Some of the things to be covered in a business plan for the best online business are:
- Type of distributor
- Product for distribution
- Company's name
- Target merchant area
- Shipping method
- Price strategy based on competitor prices
- A general business strategy
4. Estimate the capital required to start the business
Finance is the backbone of almost all successful online businesses. To start and run the business smoothly, a correct estimation of the startup cost is crucial. In the distribution business, the significant expenditure is involved in buying and maintenance of inventory. Startup cost depends on the product you have selected for online business. Besides this, you will need to have storage space, office equipment, office space, and warehouse equipment.
Online distribution business has opened gates of new opportunities for an entrepreneur with small business ideas. For example, the distributors do not require to deal with any physical possession of the goods, drop-shipping business. This means no inventory space, no warehouse, and no hassles related to shipping and inventory. As a result, the startup cost can be very low.
5. Develop a marketing plan
A good marketing plan would help you reach your target customer and give you a competitive edge over other market players. Your marketing plan will depend on your product and your target customers. Your plan's ultimate aim should be to let your target clients know about your online distribution business and the services offered by you. This can be achieved by conducting one-to-one meetings, advertising your company via SEO, etc.
6. Determine the best financing options
It's easy to start a distribution business based on small business ideas as the startup cost would be low. Whereas the startup cost is too high, you might need to look for various loan options. Consider all the available options and select one that suit your business needs.
7. Form your business as per legal guidelines
Depending on the type of company you want to open ( partnership, LLC, etc.), create your company as per your state's legal guidelines. Taking the help of a professional is advisable.
8. Register your company and get a license
Based on the ongoing guidelines, register your company's name and get the license. For further details regarding distribution business license and documentation, contact your local Small Business Administration office.
9. Find an office space
Selection of the office space will depend on the type of the product, the size of the inventory, and the delivery type. As discussed earlier, you won't require any storage space if you are in a drop-shipping online distribution business. You can always start with a small space, and once your company starts getting more business, you can convert your small business ideas into bigger ones.
With low investment amounts, people base their new business ideas on business with low startup costs like drop-shipping. Also, the internet has made it possible that you can run the best online business from the comfort of your home. It all comes to your product selection.
10. Identify and contact your product source
Do thorough research and select manufacturers or wholesalers from whom you will buy your goods.
11. Buy inventory
Once you have selected your source, it's time to buy goods. Unless you opt for a drop-shipping distribution business model, you need to buy and maintain your stock. While purchasing inventory, remember the budget, a potential sale, storage space availability, shelf life, etc.
12. Create your company's website
To run a profitable and successful online business, you need to have an informative and customer-friendly website. Besides your product catalogue, prices, and offers, your website should be able to convince your buyers that you are the best in this line of business. In addition to this, you can look for ways to attract potential buyers to your website and increase your online presence. Your website content should be created with appropriate colour scheme, pictures, videos, and information.
13. Market your product
Send your catalogue to potential buyers. You can even give advertisements in publications related to your distribution business. You can also promote your product on social media platforms. If possible, try contacting potential buyers personally and convince them to buy your products.
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Q. How many products should feature in the initial catalogue?
Ans. It depends on your budget, your niche market's ongoing trend, and your target customers' preference. Avoid purchasing excessive inventory.
Q. What should be the payment trend with manufacturers and wholesalers?
Ans. Again, it varies from company to company. Usually, at the initial stages of business, the manufacturer/ wholesaler may have to ask you to make the payment upfront. With the passage of time and based on your order record, you may start getting products on credit.
Q. Can I start an online distribution business without investing money?
Ans. Yes, the drop-shipping model allows you to start a business without making any significant investment.
Q. Does an online distributor make a fixed monthly income or based on the number of clients?
Ans. This depends on the business model selected.
Q. How to make a mark in an already established market?
Ans. If you are new in the market, your first aim should be to earn your potential buyers' trust. Focus on carrying out any physical operation providing superior value and excellent customer service. For example, to attract potential buyers keep your prices as low as possible. This would lower your profit margins but would give you a competitive edge. You can even offer free delivery services or allow clients to use your storage facility if they fulfil certain basic criteria.