How to Start a Wholesale Distribution Business

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

In its most basic form, wholesale distribution is all about the "spread," or profit margin, between what you bought the product for and what you sold it for. The bigger the spread, the bigger the profits. For example, in the wine business, Alexandria, Virginia-based Borvin Beverage achieves a 30 percent profit margin. People place great value on high-end wines, so they're willing to pay more for bottles of chardonnay than they will for, say, computer modems. Bill Green, managing partner at WSG Partners LLC in Cherry Hill, New Jersey, says the typical wholesale distributor achieves a 25 percent gross margin range, while those that offer "value-added" services are getting closer to 35 to 40 percent. At YogaFit Inc. in Redondo Beach, California, Beth Shaw says she strives for a 50 percent markup on all goods. That means the yoga mat that she buys from a supplier for $20 will be sold to her customer for $30.

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

 

Books

  • 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

How to Start a Wholesale Distribution Business

 

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