Why a Distribution Company is a Safer Bet Compared to Retail
A good number of us think about starting a new business at some point of time in our lives. The very first step towards that is when you observe a need in the market. When you see an unfulfilled need or a pain point that’s not being addressed in the market, that’s an opportunity for you to base your business on. Unfortunately, a lot many of us limit ourselves to just selling a product or service to the customer.
Obviously, your first stint at a business idea won’t be a perfect one. If you are open to new ideas and opportunities, then proceed with this article. Have you ever wondered where all these businesses get their products to sell to the end user?
Instead of becoming a retailer or a service provider, at the end of the distribution line, you can try your hands further ahead the line as a distributor.
So, Who exactly is a Distributor?
Manufacturers are the ones manufacture products and retailers are the ones who sell those products. However, most manufacturers don’t sell their products to the retailers. Only very large companies selling specialized goods like to deal directly with the retailers. Are you wondering how these products reach the retailers?
A good chunk of the retailers source their products via distributors. Distributors work as authorised representatives of manufacturers. These distribution companies will look out for retailers who are selling a specific type of product, and then will try to sell them the products that are manufactured by the manufacturers they are working with. Thus, a distributor is the link between a manufacturer and a retailer.
Why Should You Take Up Distribution Instead of Retailing?
The retail businesses is a lot more competitive and volatile in almost every niche in the market.. A distribution company is less prone to this uncertainty and might be a wise choice for many entrepreneurs. If you are a retailer, you are basically a B2C entreprise, trying to appeal to a huge number of end users or a very specific niche group of consumers. If you don’t have a lot of customers by your side, it might be difficult for your company to grow and sustain itself year over year. Competition is also fierce on this part of the distribution line..
However, as a distributor, you are not concerned about the huge no of retailers, but just the quality of the contracts you make. If you somehow get a contract to supply products for a large company, then you are safe from the fluctuations of the market. With distribution business, it’s not about the total no of sales you do, as you can move more volume in less no of sales.
Say for example, let’s take the example of textile industry. The retailer will be selling one or two clothes to a large number of people, while a distributor can sell wholesale clothes in huge volumes and achieve more profits in shorter time.
Distributors can also easily build good relationships with their clients. Manufacturers and retailers, both are likely to stick to a distributor they click with than look for a new distributor very often. That’s the pros of running a B2B business like a distribution company.
How Do Distributors Make Profits
When compared to retailers, distributors won’t be able to take huge margins on the products. Most distributors would be selling at wholesale prices for the large volumes they move only at a price slightly higher than that of the original manufacturer. Prices are generally not standardized for every product and is negotiated with the customer based on the volume of order that is being processed.
Moving large volumes of product is the ideal way for a distributor to make profits. By purchasing products from the manufactures at the lowest price possible and then selling it to a retailer on a reasonable price, based on the volume is how distributors make money.
I hope this article was useful for you to learn about the distribution market and the opportunities in it. If you have any doubts with regards to this, let us know through the comments and we will be glad to help you out. If you have any suggestions regarding how we can improve the article, let us know them through the comments as well for us to improve.