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How to Start a Distribution Business

Written by:

Edited by:

Reviewed by: Daniel Javor

Published on June 17, 2022

Updated on October 18, 2022

How to Start a Distribution Business

Disclaimer: Step by Step Business’ content is for informational and educational purposes only. It’s not intended to be a substitute for professional legal or tax advice. All of our articles are thoroughly reviewed and fact-checked by our editorial team. Read our editorial guidelines for more details.

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Fast Facts

Investment range

$3,700-$9,800

Revenue potential

$50,000-$150,000 p.a.

Time to build

0-3 months

Profit potential

$43,000-$105,000 p.a.

Industry trend

Growing

Commitment

Flexible

How to Start a Distribution Business

Retailers all over the world rely on distributors to provide them with high-quality products. From cosmetics to clothing, distribution partners help big companies behind the scenes by procuring goods from manufacturers, and make significant profits from selling those goods at a competitive markup. After years of steady growth, the US wholesale industry is worth trillions, while the global market is expected to expand nearly 10% annually through 2026.

But before you start ordering items in bulk, you’ll need to learn what it takes to launch your distribution business. Luckily, this step-by-step guide contains the entrepreneurial insight and information you’ll need to get your business started and pointed toward success. 

Step 1: Decide if the Business Is Right for You

Pros and cons

Before starting a distribution business, it’s important to consider the pros and cons.

Pros

  • Flexibility – Set your own working hours
  • Good Money – Markup prices as much as 30%
  • Provide Value – Help retailers sell great products

Cons

  • Stiff Competition – Wholesale distribution is a crowded market
  • Tough Customers – Deal with demanding retail customers

Distribution and wholesale industry trends

Industry size and growth

distribution industry size and growth

Trends and challenges

Trends within the distribution industry include:

  • Health and wellness supplements, like ashwagandha and matcha tea, have become some of the most lucrative products for distribution businesses. 
  • Technological advancements have brought increased automation to distribution. Companies are now able to track stock levels and manage logistics in real time.

Challenges within the distribution industry include:

  • Retail customers can be extremely demanding, especially when it comes to shipping. As a distributor, you’re responsible for making sure customers get their products on time, which can be tough to manage when procuring products from overseas.
  • Large, big-box retailers like Costco are removing the middleman completely and buying directly from manufacturers. Offering services that manufacturers do not provide like inventory management can help wholesale distributors stay competitive.
distribution industry trends and challenges

What kind of people work in distribution?

  • Gender – 17% of distribution managers in the US are female, while 83% are male.((https://www.zippia.com/distribution-manager-jobs/demographics/))
  • Average level of education The average distribution manager has obtained a bachelor’s degree.
  • Average age – The average distribution manager in the US is 46 years old.
distribution industry demographics

How much does it cost to start a distribution business?

Startup costs for a distribution business range from $3,700 to $9,800. Main costs include a computer, a website, distribution software, and marketing expenses. If you decide to purchase or lease a warehouse to store inventory, costs will be much higher. 

Many wholesaler distributors make great money selling products on ecommerce platforms like Amazon. If you’re interested in learning more, sites like Udemy offer online courses for under $100 that can be completed in just a few hours. 

You’ll need a handful of items to successfully launch your distribution business, including:

  • Computer
  • Software
  • Website
Start-up CostsBallpark RangeAverage
Licenses and permits$100-$300$200
Insurance$200-$500$350
Website$1,000-$3,000$2,000
Computer$800-$1,600$1,200
Marketing and advertising$1,000-$3,000$2,000
Distribution management software$500-$1,000$750
Product samples$100-$400$250
Total$3,700-$9,800$6,750

How much can you earn from a distribution business?

The average markup on wholesale products is 25%, and the pricing of your items will vary greatly depending on which products you sell. After factoring in operating costs, expect a profit margin of around 85%.

If you choose to run a distribution business that sells smartphone accessories, you could purchase them from a supplier at $10 a piece and sell them to retail customers at a 25% markup for $12.50. In your first year or two, you could work out of your home and sell 20,000 units per year, bringing in $50,000 in annual revenue. This would mean $43,000 in profit, assuming that 85% margin. 

As your business grows, sales could climb to 50,000 units a year as you increase your markup to 30%. At this stage, you would hire additional staff, reducing your profit margin to around 70%. With annual revenue of $150,000, you’d make a handsome profit of $105,000.

distribution business earnings forecast

What barriers to entry are there?

There are a few barriers to entry when it comes to starting a distribution business. Your biggest hurdles will be:

  • Competition from other distributors
  • Finding reliable, high-quality manufacturers

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Step 2: Hone Your Idea

Now that you know what’s involved in starting a distribution business, it’s a good idea to hone your concept in preparation to enter a competitive market. 

Why? Identify an opportunity

Research distribution businesses in your area to examine their products, price points, and what sells best. You’re looking for a market gap to fill. For instance, maybe the local market is missing a wholesale distributor that offers custom branded packaging services.

You might consider targeting a niche market by specializing in a certain aspect of your industry, such as cosmetics or educational materials.

This could jumpstart your word-of-mouth marketing and attract clients right away. 

What? Determine your products or services

Wholesale distributors procure products in bulk from suppliers and then sell them to specialty retailers. The retailers then brand the items and sell them at a higher price point. Your business might also handle the storage of customer inventory, packaging and labeling, and shipping to end buyers.

How much should you charge for wholesale distribution?

Distributors make money by purchasing products in bulk and selling them to retailers at a markup. Pricing can vary greatly depending on which products you sell and the clients you serve. The average price markup is between 20% and 30%.  

If you store inventory out of your home or ship it directly from supplier to retail customer, your ongoing costs will be fairly low. Aim for a profit margin of 85%.

Once you know your costs, you can use this Step By Step profit margin calculator to determine your mark-up and final price points. Remember, the prices you use at launch should be subject to change if warranted by the market.

Who? Identify your target market

Your target market will be retailers who are looking to purchase products in bulk for resale. You’ll need to tailor your marketing efforts to the specific niche you serve. Advertise your products and services on social media sites like Instagram and Facebook. Consider networking with businesses on LinkedIn to generate additional leads.

Where? Choose your business premises

In the early stages, you may want to run your business from home to keep costs low. But as your business grows, you’ll likely need to hire workers for various roles and may need to rent out an office or warehouse. You can find commercial space to rent in your area on sites such as Craigslist, Crexi, and Instant Offices.

When choosing a commercial space, you may want to follow these rules of thumb:

  • Central location accessible via public transport
  • Ventilated and spacious, with good natural light
  • Flexible lease that can be extended as your business grows
  • Ready-to-use space with no major renovations or repairs needed
distribution business idea rating

Step 3: Brainstorm a Business Name

Your business name is your business identity, so choose one that encapsulates your objectives, services, and mission in just a few words. You probably want a name that’s short and easy to remember, since much of your business, and your initial business in particular, will come from word-of-mouth referrals.

Here are some ideas for brainstorming your business name:

  • Short, unique, and catchy names tend to stand out
  • Names that are easy to say and spell tend to do better 
  • Name should be relevant to your product or service offerings
  • Ask around — family, friends, colleagues, social media — for suggestions
  • Including keywords, such as “distributor” or “wholesale distribution”, boosts SEO
  • Name should allow for expansion, for ex: “Jim’s Bakery” over “Jim’s Cookies”
  • Avoid location-based names that might hinder future expansion
  • Use online tools like the Step by Step Business Name Generator. Just type in a few keywords and hit “generate” and you’ll have dozens of suggestions at your fingertips.

Once you’ve got a list of potential names, visit the website of the US Patent and Trademark Office to make sure they are available for registration and check the availability of related domain names using our Domain Name Search tool. Using “.com” or “.org” sharply increases credibility, so it’s best to focus on these. 

Finally, make your choice among the names that pass this screening and go ahead with domain registration and social media account creation. Your business name is one of the key differentiators that sets your business apart. Once you pick your company name, and start with the branding, it is hard to change the business name. Therefore, it’s important to carefully consider your choice before you start a business entity.

Step 4: Create a Business Plan

Every business needs a plan. This will function as a guidebook to take your startup through the launch process and maintain focus on your key goals. A business plan also enables potential partners and investors to better understand your company and its vision:

  • Executive Summary: Brief overview of the entire business plan; should be written after the plan is complete.
  • Business Overview: Overview of the company, vision, mission, ownership, and corporate goals.
  • Product and Services: Describe your offerings in detail.
  • Market Analysis: Assess market trends such as variations in demand and prospects for growth, and do a SWOT analysis.
  • Competitive Analysis: Analyze main competitors, assessing their strengths and weaknesses, and create a list of the advantages of your services.
  • Sales and Marketing: Examine your companies’ unique selling propositions (USPs) and develop sales, marketing, and promotional strategies.
  • Management Team: Overview of management team, detailing their roles and professional background, along with a corporate hierarchy.
  • Operations Plan: Your company’s operational plan includes procurement, office location, key assets and equipment, and other logistical details.
  • Financial Plan: Three years of financial planning, including startup costs, break-even analysis, profit and loss estimates, cash flow, and balance sheet.
  • Appendix: Include any additional financial or business-related documents.

If you’ve never created a business plan, it can be an intimidating task. You might consider hiring a business plan specialist at Fiverr to create a top-notch business plan for you.

what to include in a business plan

Step 5: Register Your Business

Registering your business is an absolutely crucial step — it’s the prerequisite to paying taxes, raising capital, opening a bank account, and other guideposts on the road to getting a business up and running.

Plus, registration is exciting because it makes the entire process official. Once it’s complete, you’ll have your own business! 

Choose where to register your company

Your business location is important because it can affect taxes, legal requirements, and revenue. Most people will register their business in the state where they live, but if you are planning to expand, you might consider looking elsewhere, as some states could offer real advantages when it comes to distribution businesses. 

If you’re willing to move, you could really maximize your business! Keep in mind, it’s relatively easy to transfer your business to another state. 

Choose your business structure

Business entities come in several varieties, each with its pros and cons. The legal structure you choose for your distribution business will shape your taxes, personal liability, and business registration requirements, so choose wisely. 

Here are the main options:

  • Sole Proprietorship – The most common structure for small businesses makes no legal distinction between company and owner. All income goes to the owner, who’s also liable for any debts, losses, or liabilities incurred by the business. The owner pays taxes on business income on his or her personal tax return.
  • General Partnership – Similar to a sole proprietorship, but for two or more people. Again, owners keep the profits and are liable for losses. The partners pay taxes on their share of business income on their personal tax returns.
  • Limited Liability Company (LLC) – Combines the characteristics of corporations with those of sole proprietorships or partnerships. Again, the owners are not personally liable for debts.
  • C Corp – Under this structure, the business is a distinct legal entity and the owner or owners are not personally liable for its debts. Owners take profits through shareholder dividends, rather than directly. The corporation pays taxes, and owners pay taxes on their dividends, which is sometimes referred to as double taxation.
  • S Corp – An S-Corporation refers to the tax classification of the business but is not a business entity. An S-Corp can be either a corporation or an LLC, which just need to elect to be an S-Corp for tax status. In an S-Corp, income is passed through directly to shareholders, who pay taxes on their share of business income on their personal tax returns.

We recommend that new business owners choose LLC as it offers liability protection and pass-through taxation while being simpler to form than a corporation. You can form an LLC in as little as five minutes using ZenBusiness’s online LLC formation service. They will check that your business name is available before filing, submit your articles of organization, and answer any questions you might have. 

types of business structures

Step 6: Register for Taxes

The final step before you’re able to pay taxes is getting an Employer Identification Number, or EIN. You can file for your EIN online or by mail or fax: visit the IRS website to learn more. Keep in mind, if you’ve chosen to be a sole proprietorship you can simply use your social security number as your EIN. 

Once you have your EIN, you’ll need to choose your tax year. Financially speaking, your business will operate in a calendar year (January–December) or a fiscal year, a 12-month period that can start in any month. This will determine your tax cycle, while your business structure will determine which taxes you’ll pay.

The IRS website also offers a tax-payers checklist, and taxes can be filed online.

It is important to consult an accountant or other professional to help you with your taxes to ensure you are completing them correctly.

Step 7: Fund your Business

Securing financing is your next step and there are plenty of ways to raise capital:

  • Bank loans: This is the most common method but getting approved requires a rock-solid business plan and strong credit history.
  • SBA-guaranteed loans: The Small Business Administration can act as guarantor, helping gain that elusive bank approval via an SBA-guaranteed loan.
  • Government grants: A handful of financial assistance programs help fund entrepreneurs. Visit Grants.gov to learn which might work for you.
  • Friends and Family: Reach out to friends and family to provide a business loan or investment in your concept. It’s a good idea to have legal advice when doing so because SEC regulations apply.
  • Crowdfunding: Websites like Kickstarter and Indiegogo offer an increasingly popular low-risk option, in which donors fund your vision. Entrepreneurial crowdfunding sites like Fundable and WeFunder enable multiple investors to fund your business.
  • Personal: Self-fund your business via your savings or the sale of property or other assets.

Bank and SBA loans are probably the best option, other than friends and family, for funding a distribution business. You might also try crowdfunding if you have an innovative concept.  

Step 8: Apply for Licenses/Permits

Starting a distribution business requires obtaining a number of licenses and permits from local, state, and federal governments.

Federal regulations, licenses, and permits associated with starting your business include doing business as (DBA), health licenses and permits from the Occupational Safety and Health Administration (OSHA), trademarks, copyrights, patents, and other intellectual properties, as well as industry-specific licenses and permits. 

You may also need state-level and local county or city-based licenses and permits. The license requirements and how to obtain them vary, so check the websites of your state, city, and county governments or contact the appropriate person to learn more. 

You could also check this SBA guide for your state’s requirements, but we recommend using MyCorporation’s Business License Compliance Package. They will research the exact forms you need for your business and state and provide them to ensure you’re fully compliant.

This is not a step to be taken lightly, as failing to comply with legal requirements can result in hefty penalties.

If you feel overwhelmed by this step or don’t know how to begin, it might be a good idea to hire a professional to help you check all the legal boxes.

Step 9: Open a Business Bank Account

Before you start making money, you’ll need a place to keep it, and that requires opening a bank account.

Keeping your business finances separate from your personal account makes it easy to file taxes and track your company’s income, so it’s worth doing even if you’re running your distribution business as a sole proprietorship. Opening a business bank account is quite simple, and similar to opening a personal one. Most major banks offer accounts tailored for businesses — just inquire at your preferred bank to learn about their rates and features.

Banks vary in terms of offerings, so it’s a good idea to examine your options and select the best plan for you. Once you choose your bank, bring in your EIN (or Social Security Number if you decide on a sole proprietorship), articles of incorporation, and other legal documents and open your new account. 

Step 10: Get Business Insurance

Business insurance is an area that often gets overlooked yet it can be vital to your success as an entrepreneur. Insurance protects you from unexpected events that can have a devastating impact on your business.

Here are some types of insurance to consider:

  • General liability: The most comprehensive type of insurance, acting as a catch-all for many business elements that require coverage. If you get just one kind of insurance, this is it. It even protects against bodily injury and property damage.
  • Business Property: Provides coverage for your equipment and supplies.
  • Equipment Breakdown Insurance: Covers the cost of replacing or repairing equipment that has broken due to mechanical issues.
  • Worker’s compensation: Provides compensation to employees injured on the job.
  • Property: Covers your physical space, whether it is a cart, storefront, or office.
  • Commercial auto: Protection for your company-owned vehicle.
  • Professional liability: Protects against claims from a client who says they suffered a loss due to an error or omission in your work.
  • Business owner’s policy (BOP): This is an insurance plan that acts as an all-in-one insurance policy, a combination of the above insurance types.
types of business insurance

Step 11: Prepare to Launch

As opening day nears, prepare for launch by reviewing and improving some key elements of your business. 

Essential software and tools

Being an entrepreneur often means wearing many hats, from marketing to sales to accounting, which can be overwhelming. Fortunately, many websites and digital tools are available to help simplify many business tasks.  

You may want to use industry-specific software, such as Zoey, Znode, or NetSuite to create quotes, track shipments, and run sales reports. 

Accounting

  • Popular web-based accounting programs for smaller businesses include Quickbooks, Freshbooks, and Xero
  • If you’re unfamiliar with basic accounting, you may want to hire a professional, especially as you begin. The consequences for filing incorrect tax documents can be harsh, so accuracy is crucial.

Marketing

Some of your business will come from word of mouth or online visitors, but you should still invest in digital marketing! Getting the word out is especially important for new businesses, as it’ll boost customer and brand awareness. 

Once your website is up and running, link it to your social media accounts and vice versa. Social media is a great tool for promoting your business because you can create engaging posts that advertise your products:

  • Facebook: Great platform for paid advertising, allows you to target specific demographics, like men under age 50 in the Cleveland area. 
  • Instagram: Same benefits as Facebook but with different target audiences.
  • Website: SEO will help your website appear closer to the top in relevant search results, a crucial element for increasing sales. Make sure that you optimize calls to action on your website. Experiment with text, color, size, and position of calls to action such as “Buy Now”. This can sharply increase purchases. 
  • Google and Yelp: For businesses that rely on local clientele, getting listed on Yelp and Google My Business can be crucial to generating awareness and customers.

Kickstart Marketing

Take advantage of your website, social media presence and real-life activities to increase awareness of your offerings and build your brand. Some suggestions include:

  • Competitions and giveaways – Generate interest by offering prizes for customers who complete a certain action, such as resharing one of your social media posts.
  • Flyering – Distribute flyers in your neighborhood and at industry events 
  • In-Person Sales – Offer your products at local markets, trade shows 
  • Email marketing/newsletter – Send regular emails to customers and prospects. Make them personal. 
  • Start a blog – Start a blog and post regularly. Change up your content and share on multiple sites.
  • Seek out referrals – Offer incentives to generate customer referrals to new clients. 
  • Paid ads on social media – Choose sites that will reach your target market and do targeted ads.
  • Do a webinar – Share your wholesale distribution expertise online with a video seminar
  • Testimonials – Share customer testimonials about how your distribution company helped them

Develop your website

Website development is crucial because your site is your online presence and needs to convince prospective clients of your expertise and professionalism. They are unlikely to find your website, however, unless you follow Search Engine Optimization (SEO) practices. These are steps that help pages rank higher in the results of top search engines like Google. 

You can create your own website using services like WordPress, Wix, or Squarespace. This route is very affordable, but figuring out how to build a website can be time-consuming. If you lack tech-savvy, you can hire a web designer or developer to create a custom website for your business.

Focus on USPs

Unique selling propositions, or USPs, are the characteristics of a product or service that sets it apart from the competition. Customers today are inundated with buying options, so you’ll have a real advantage if they are able to quickly grasp how your distribution business meets their needs or wishes. It’s wise to do all you can to ensure your USPs stand out on your website and in your marketing and promotional materials, stimulating buyer desire. 

Global pizza chain Domino’s is renowned for its USP: “Hot pizza in 30 minutes or less, guaranteed.” Signature USPs for your distribution business could be:

  • High-quality goods shipped lightning fast!
  • Taking your retail outlet to the next level with top-notch products
  • World-class distribution at budget prices
unique selling proposition

Networking

You may not like to network or use personal connections for business gain. But your personal and professional networks likely offer considerable untapped business potential. Maybe that Facebook friend you met in college is now running a wholesale distribution business, or a LinkedIn contact of yours is connected to dozens of potential clients. Maybe your cousin or neighbor has been working in product distribution for years and can offer invaluable insight and industry connections. 

The possibilities are endless, so it’s a good idea to review your personal and professional networks and reach out to those with possible links to or interest in distribution. You’ll probably generate new customers or find companies with which you could establish a partnership. Online businesses might also consider affiliate marketing as a way to build relationships with potential partners and boost business.

Step 12: Build Your Team

If you’re starting out small from a home office, you may not need any employees. But as your business grows, you will likely need workers to fill various roles. Potential positions for a distribution business include:

  • Administrative Assistant – Track inventory, ship products to customers
  • Marketing Lead – Manage social media accounts, run advertising campaigns 
  • Accountant – Bookkeeping, tax preparation

At some point, you may need to hire all of these positions or simply a few, depending on the size and needs of your business. You might also hire multiple workers for a single role or a single worker for multiple roles, again depending on need. 

Free-of-charge methods to recruit employees include posting ads on popular platforms such as LinkedIn, Facebook, or Jobs.com. You might also consider a premium recruitment option, such as advertising on Indeed, Glassdoor, or ZipRecruiter. Further, if you have the resources, you could consider hiring a recruitment agency to help you find talent. 

Step 13: Start Making Money!

Wholesale distribution is a profitable and fast-growing line of work. If you have a passion for product delivery and services, you could get in on the action, help retail businesses and build your own distribution empire!

You’ve done your homework and gained the insights needed for a successful launch, now it’s time to start achieving your distribution dreams.  

Distribution Business FAQs

How much does it cost to start a distribution business?

You can start a distribution business for around $3,700. Storing inventory at home or shipping directly from supplier to customer keeps costs low.

Is a distribution business profitable?

Yes, distribution businesses can be extremely profitable. The key to success is finding the right product niche and using effective pricing strategies to generate the most revenue.

How much should I charge customers for products?

Your prices will depend on the types of retail customers you work with. In general, distributor price markups are between 20 and 30%.

Do I need a license to start a distribution business?

You may be required to obtain specific licenses or permits to run your distribution business. Check with your state and local governments and visit MyCorporation’s Business License Compliance page.