How To Start Distribution Business With Limited Capital

Every week, I receive many mails and tel calls from enterprising youth, experienced businessmen, retired professionals with vast domain knowledge - inquiring how to enter distribution trade. They are enthusiastic entrepreneurs - want to start a new business or expand existing one - with limited capital. For newcomers, its always better to start a business in service than manufacturing as the later may demand larger investment in terms of money, effort and other resources. This article describes what's necessary to start a distribution business with modest capital.

The first and most vital requirement of a distributor is to have a downstream retail chain where he/she can sell the merchandise. Essentially, distributor is a middleman - a re-seller. He/she has to resell the products coming from manufacturer to retailers. So, building a good relationship with retailers in the region is the starting point in the life of a distributor.

Developing this ability does not require financial capital, only investment in human relationship. One may go around one's locality and build relationship with at least 50 retailers - collecting information like contact details of owner, kind of products being sold, who are present suppliers, how often new stock arrives, which are fast moving products, kind of credit etc.

Above exercise should result in an understanding of kind of demand in the locality and building an ability to sell to retailers. A distributor employs salesmen to collect orders from retailers. However, in the beginning one has to perform all tasks. This helps in preserving capital as well as learning the trade.

There are experienced distributors wishing to expand present business and retired professionals who have good knowledge of market and possess vast domain knowledge. For this group as well as newcomers - following lesson in salesmanship may be useful. 

A successful salesman must master following traits to win market command :

1. You must know the faces in the market; know your customers like the back of your hand.  You must have a broad based idea regarding all of your outlets, their types, their locality and customers, off-take patterns, intake and pocket capacity, access of your competition and every other damn things. For the distributors/Stockist the most important aspect you should be aware of is the financial strength, the stock liquidation capacity and also their long term vision with your company. Always try to spend maximum time in the market and amass market facts as much as possible. This will not only help you to plan and steer the market according to your objectives but also to catch up market trend well in advance.
  
2. The market must know your face, I mean you must have an excellent rapport in your territory, people must know you by your name. Don't just be a sales person, be a friend to them and win their trust. Remember, little drops of water make the mighty ocean, so even the tiny Category- C outlets are also important, mind them.

3. Spread the Reach, It is the most important success mantra in this trade! Ever wondered whats is so special about Coca Cola? its their reach. It is always better to place 2 pieces in 3 outlets than 3 pieces in 2 outlets because it leaves a room for the market contingencies and keep the pipeline moving.

Infrastructure And Capital

Once a downstream retail channel has been developed, the rest are easier to get - like storage space, some transport like bicycle, two-wheeler or 3-wheeler for supplying merchandise and some capital. The capital is required to pay manufacturer for merchandise and withstand the retailer credit. While starting - you may not get credit from manufacturer. So, have cash reserve for first few shipments and be active on collecting cash. Usually retailer credit is 7 - 10 days. Make sure to avoid repeat credit till earlier collections are complete.


How To Get Distributorship ?

You are now ready and set to go - but how to find manufacturers ? Newspapers or online directories may help - but both has severe limitations. Advertisement in Newspaper costs money but there's  no guarantee of success. Online directories may provide contact details of manufacturers, but the concerned manufacturer may not need distributor at that time. What you need are details of those manufacturers and importers who are looking for distributors.


Fortunately - there's an online portal that helps distributors - new or experienced - to connect with manufacturers and importers looking for distributors, dealers, stockists, agents etc.  The service is completely free of cost !

Please visit Vanik.com - and register yourself as Distribution Partner. Its a free of cost service, takes just couple of minutes. After registration, you will be able to post your own advertisement free of cost, any number of times, round the year. Moreover, Vanik.com has listed thousands of manufacturers who are looking for distributors. As registered member - you will be able to contact as many manufacturers/importers as you like. There's absolutely no restriction ! Only requirement, you need to be serious and share your details like background, experience, infrastructure, investment capacity, PAN/GST number etc.  

Conclusion

Some manufacturers demand security deposit for new distributors. But then there are good many who do not. One can negotiate the terms with manufacturers. One simple formula is : no security deposit - no credit. The manufacturer would not demand security deposit but will not give credit in the beginning. This is a fair balance. All b2b transactions, in essence, are based on trust and relationship. Once mutual trust develops between two parties - credit and other issues get resolved smoothly.

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