5 Secrets to Running a Successful Wholesale Distribution Business
The pros chime in with expert advice on what you should do -- and what you shouldn't -- in order to succeed in this competitive industry.
Opinions expressed by Entrepreneur contributors are their own.
In Start Your Own Wholesale Distribution Business, the staff at Entrepreneur Press and writer Bridget McCrea explain how to start and run a successful wholesale distribution business. In this edited excerpt, the authors offer expert advice on how you can help your wholesale distribution business thrive.
Let's face it: Everyone wants to be successful, and there's nothing quite like starting your own business to enrich your life personally and financially. Sometimes, however, the road from start to finish is a bumpy one. The first two years of your wholesale distributorship's existence will be the "learning" years, when you experience the ups and downs of being a new business owner in a new industry.
On the positive side, plenty of wholesale distributors came before you and are now overflowing with advice and inspiration that will help you reach your goals. Here are a few thoughts to keep you going through the startup phase.
Managing the credit game
Because every wholesaler plays the middleman position between manufacturer and distributor, the real challenge lies in leveraging that position to your best advantage. While it may appear that you're powerless being stuck between the two, there's also a "glass is half full" way to look at the relationship. As a wholesale distributor, it's up to you to make the other two businesses work in sync: You're helping the manufacturer get its products to market, and you're helping the customer obtain the products he or she needs to run a business.
While playing that important role, one of the major mistakes a wholesale distributor should avoid at all costs is the overextension of credit to customers. This tends to occur when one or more of your customers demands extended payment terms on their invoices, yet your manufacturers are demanding their own payment terms on the other end. You can avoid this by being diligent about checking credit references, meticulous when explaining your payment terms to new customers, and careful about not letting your receivables become too old, or "aged."
The other part of the credit issue is the customer who buys too much and leaves you "overexposed" (meaning one particular customer owes too large of a percentage of your receivables). You can avoid this by setting an appropriate credit limit upfront, then reviewing the customer's account on a twice-yearly basis (or whatever time frame works best for you). Credit limits can then be increased based on the customer's payment history.
Clearing the hurdles
At Los Angeles-based YogaFit Inc., Beth Shaw says one of her firm's biggest challenges is minimizing the time between receipt of a customer order and receipt of the goods from the manufacturer or supplier. "Not getting product from our suppliers on time is a constant challenge," says Shaw, whose firm stocks inventory but also relies on timely shipments from suppliers, particularly on popular items that her customers buy in bulk. To work through it, Shaw not only pressures suppliers to fulfill orders faster but also provides realistic time frames (such as "allow two to four weeks for delivery") to customers.
To guarantee that those customers are well taken care of in the interim—and on all future orders—Shaw says she impresses on her staff the importance of impeccable customer service. "I really drill it into our staff, teaching them how to handle both satisfied and difficult customers," says Shaw. "We also teach them how not to let people steal their time and how to address their needs and solve their problems in an efficient manner."
Good advice to heed
Laura Benson, owner and founder of Jeanne Beatrice LLC in Minneapolis, advises both new and growing distributors to pay attention to consumer tastes and buying shifts—both of which can quickly derail even the best laid business plans. "Keep tabs on economic changes, what people are willing to spend, and other trends that could significantly impact your business," says Benson.
Knowing what your strengths and weaknesses are—and then rounding out those attributes with either in-house or outsourced support/help—goes a long way in helping businesses get off of the ground and stay in growth mode, Benson adds. "I don't think you need to know all the answers at the beginning, so just trust that if you know your idea is good, it probably is," says Benson. "For me, it was one baby step at a time, and before I knew it, I was selling baskets."
Evan Money, president at Extreme Sports in Rancho Palos Verdes, California, says that even in today's tech-oriented world—where customers can find new sources of products with the simple click of a mouse—relationships remain a strong foundational element of any distributor-customer transaction. "As the world gets larger, it really gets smaller and flatter. So while someone can do a deal direct with a distributor in China or India, the reality is that the customer may never hear from that source again once they've paid for the merchandise," says Money, who's heard multiple horror stories along those lines from customers over the past few years. "Rather than focusing on being the low-price leader, put an effort into building strong relationships. That energy will be well spent over the long run."