Step One: Determine whether distributors are necessary.
Yes, yes. You must start with the “why.” Consider the following as you map out whether or not you even need a distribution partner at all:
- Are you ready for a new middle man? More hands between your brand and your customer could mean a lower profit margin. A distributor will take a significant cut from the profits earned by the company.
- Is your product a better fit online — or worse? For example, the food and beverages industry is a trillion-dollar market offline, but makes a small portion of ecommerce sales. Gearing up with an online distributor might not be worth it, but going with a local brick-and-mortar one could be beneficial.
- Do your buyers exist in specific stores? If you sell to a market that doesn’t typically shop at retail stores, there is no real reason to partner with a distributor. However, if the target market is concentrated somewhere, shelving in a store might be a good idea.
- Could you make enough products? Before signing on with a distributor, think about your manufacturing cycles. They need to be up to the task of creating high volumes of supply for your retailers’ demands. If it might be prudent to stick to the pre-established channels initially.
Step Two: Identify target stores
The first step is to conduct market research and source opinions from your current customer base to better firm up a distribution strategy. It is important to consider how they and your target customer prefer to shop to get an idea of the types of retailers your company should target. Leverage real data as much as possible rather than just going off a whim.
Then make a list of ideal stores — your distributor will need to know what you’re envisioning.
Step Three: Understand what the competition is using
Distribution is an industry-by-industry game. After getting an idea of where to stock the products, the next piece of research is finding out which distribution partners the competition is using. Understanding the competition will give insight into best practices, established distribution channels, and proven players in the industry.
Bonus Tip: If you are struggling to get this information, search for keywords such as “[Product Category] distributors” or “[Product Category] distributors in [local market].”
Step Four: Consider joining trade associations
Manufacturers, retailers, and distributors from most industries come together via local trade associations. There is a list of local and regional chapters of different trade associations offered by the National Association of Wholesalers (NAW) for the U.S. It is important to find an association that serves the relevant industry in your region.
Step Five: Consult wholesale directories
A wholesaler is the retail-facing side of a distributor. If you’re looking for a wholesaler, consider visiting Wholesale Central. It has a pretty thorough list of wholesalers across different verticals. Wholesalers are typically positioned towards retailers; however, they like to hear from manufacturers who want to work with them.
How to Evaluate Potential Distributors
Spend time researching and evaluating your potential distributors before signing a contract. A distributor is an essential partnership, so you’ll want to take your time choosing one. Here are a few things to consider along the way:
What are your business goals and values? If your company’s plan is to grow the business sustainably and work with small stores, it is important to look for a distribution company that prioritizes this method. However, if your target market and goals lie in getting into big-box retailers to boost your sales, pick accordingly.
What are their sales and marketing capabilities? Make sure to do proper due diligence on the distributor. You will want to know their ability to generate leads, performance metrics, distribution process, what niches they specialize in, technical competence, and the outside and inside sales force size. Also, take a look at the past sales figures history for the same or similar products.
How are their management skills and systems? Take a look under the hood of the distributor’s own planning, training, human resources, and financial management. Using this information, you can then understand whether the distributor can keep pace with anticipated growth in the target market. It is also vital to look into the distributor’s inventory handling capabilities. Finally, look into their ability to manage warehouse spaces and their ability to track important statistics such as turnover rates.
How big is the distributor? It is important to work with a distribution partner that can give your business the attention it needs without heavy delays in communications. You should be looking for the distributor to provide prompt communication regarding changes in management and other personnel and operating policies and shifts in the local market.
Tip: Consider partnering with a small distributor or a non-traditional distribution partner, such as a local community organization, to reach niche markets.
How Settle Can Help
Once you’ve found the right distributor that you want to work with (and that wants to work with you!), you’ll need to set up a strong working relationship. That starts with making sure everyone is paid on time. That’s where Settle comes in.
Settle helps companies with cash flow management in times of expansion and growth — like at the moment a business evolves into a distribution model. Going to distribution requires new levels of financial planning, budgeting, and forecasting. For payers, Settle frees up cash flow so you have the capital you need to grow your business. For your newfound distributors, Settle helps them to get paid on time. develop strong relationships with suppliers by getting all invoices paid on time.
Schedule a demo with us today to learn more.
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