Start an Ecommerce Distribution Business by following these 10 steps:
You have found the perfect business idea, and now you are ready to take the next step. There is more to starting a business than just registering it with the state. We have put together this simple guide to starting your Ecommerce Distribution Business. These steps will ensure that your new business is well planned out, registered properly and legally compliant.
Check out our How to Start a Business page.
STEP 1: Plan your business
A clear plan is essential for success as an entrepreneur. It will help you map out the specifics of your business and discover some unknowns. A few important topics to consider are:
- What are the startup and ongoing costs?
- Who is your target market?
- How much can you charge customers?
- What will you name your business?
Luckily we have done a lot of this research for you.
What are the costs involved in opening an Ecommerce Distribution Business?
Many ecommerce distribution businesses start out by operating from a home office. While this limits your storage space, it reduces initial costs significantly by eliminating the need for a warehouse. In addition to storage space, your office will need to be equipped with a computer system, dedicated phone line, and high-speed internet.
Once your office and storage space is set up, it’s time to start filling it with inventory. Inventory costs vary widely depending on the type of products, wholesale costs, and minimum order requirements. For many distribution businesses, inventory represents the biggest part of their starting budget. When the market allows, business owners are encouraged to consider drop-shipping to eliminate the need to keep a large inventory on-hand.
Your business’s website should be user-friendly with multiple photos and a detailed description of each product. It should have the ability to complete transactions securely and assist with inventory management. A professionally-built website will set you back anywhere from $5,000 to $10,000.
What are the ongoing expenses for an Ecommerce Distribution Business?
As with any business, your profits are directly tied to ongoing expenses. Therefore, you will need to work regularly to keep costs at a minimum. You will need to consider the following expenses when determining your monthly overhead budget:
- Website management
- Inventory replenishment
- Marketing and sales
- Insurance and licenses
- Inventory management software
Your business’s long-term success will be reliant on your ability to maintain a steady cash flow and should be considered in every decision you make.
Who is the target market?
When writing your business plan, conduct thorough research to identify where your services are needed most. You may choose to sell solely to individuals, in bulk to larger businesses, or a combination of both. Many smaller independent distributors choose to serve niche markets rather than trying to compete with larger distribution chains. The great news is, regardless of which facet of the industry you choose to serve, your digital assets will work for your 24/7.
How does an Ecommerce Distribution Business make money?
An ecommerce distribution business earns money for products sold and shipped to a consumer. Some charge a flat monthly rate for their services, while others charge a fee for each product sold. Regardless of your business model, inventory management will help control overhead costs and keep your cash flow on hand.
How much can you charge customers?
Product pricing varies depending upon the type of product and, oftentimes, the size of the order. Distributor markup ranges anywhere from 5% to 40%, with 20% being the average.
How much profit can an Ecommerce Distribution Business make?
While most businesses take up to three years to realize a profit, that doesn’t have to be the case with your ecommerce distribution business. In fact, one startup reported a profit of over $35,000 in their first month of business. The key is to partner with organizations that offer quality products that fill a current market need.
How can you make your business more profitable?
While it does come with its own set of challenges, industry leaders recommend that startups sell items in bulk. Doing so allows you to purchase at the lowest possible price and distribute at a competitive yet profitable price.
If your workspace allows for it, on-demand warehousing is an excellent way to increase annual profits. Businesses will rent your space for short-term periods and pay you to fulfill their orders until their inventory is gone.
What will you name your business?
Choosing the right name is very important. Read our detailed guide on how to name your business. We recommend checking if the business name you choose is available as a web domain and securing it early so no one else can take it.
STEP 2: Form a legal entity
Establishing a legal business entity such as an LLC or corporation protects you from being held personally liable if your Ecommerce Distribution Business is sued.
Form Your LLC
Read our Guide to Form Your Own LLC
Recommended: You will need to elect a registered agent for your LLC. LLC formation packages usually include a free year of registered agent services. You can choose to hire a registered agent or act as your own.
STEP 3: Register for taxes
You will need to register for a variety of state and federal taxes before you can open for business.
In order to register for taxes you will need to apply for an EIN. It's really easy and free!
You can acquire your EIN for free through the IRS website, via fax, or by mail. If you would like to learn more about EINs and how they can benefit your LLC, read our article, What is an EIN?.
Small Business Taxes
Depending on which business structure you choose, you might have different options for how your business will be taxed. For example, some LLCs could benefit from being taxed as an S corporation (S corp).
You can learn more about small business taxes in these guides:
There are specific state taxes that might apply to your business. Learn more about state sales tax and franchise taxes in our state sales tax guides.
STEP 4: Open a business bank account & credit card
Using dedicated business banking and credit accounts is essential for personal asset protection.
When your personal and business accounts are mixed, your personal assets (your home, car, and other valuables) are at risk in the event your business is sued. In business law, this is referred to as piercing your corporate veil.
Additionally, learning how to build business credit can help you get credit cards and other financing in your business's name (instead of yours), better interest rates, higher lines of credit, and more.
Open a business bank account
- This separates your personal assets from your company's assets, which is necessary for personal asset protection.
- It also makes accounting and tax filing easier.
Recommended: Read our Best Banks for Small Business review to find the best national bank, credit union, business-loan friendly banks, one with many brick-and-mortar locations, and more.
Open net-30 accounts
When it comes to establishing your business credit, net-30 vendors are considered the way to go. The term "net-30," which is popular among vendors, refers to a business credit arrangement where the company pays the vendor within 30 days of receiving goods or services.
Net-30 credit terms are often used for businesses that need to obtain inventory quickly but do not have the cash on hand.
Besides establishing business relationships with vendors, net-30 credit accounts get reported to the major business credit bureaus (Dun & Bradstreet, Experian Business, and Equifax Business Credit). This is how businesses build business credit so they can qualify for credit cards and other lines of credit.
Recommended: Read our guide on the best net-30 vendors so you can start building business credit now, so you never have to worry about cash flow in the future. Keep in mind that poor cash flow is the #1 reason businesses fail!
Get a business credit card
- This helps you separate personal and business expenses by putting your business' expenses all in one place.
- It also builds your company's credit history, which can be useful to raise money and investment later on.
STEP 5: Set up business accounting
Recording your various expenses and sources of income is critical to understanding the financial performance of your business. Keeping accurate and detailed accounts also greatly simplifies your annual tax filing.
STEP 6: Obtain necessary permits and licenses
Failure to acquire necessary permits and licenses can result in hefty fines, or even cause your business to be shut down.
STEP 7: Get business insurance
Just as with licenses and permits, your business needs insurance in order to operate safely and lawfully. Business Insurance protects your company’s financial wellbeing in the event of a covered loss.
There are several types of insurance policies created for different types of businesses with different risks. If you’re unsure of the types of risks that your business may face, begin with General Liability Insurance. This is the most common coverage that small businesses need, so it’s a great place to start for your business.
Learn more about General Liability Insurance.
Another notable insurance policy that many businesses need is Workers’ Compensation Insurance. If your business will have employees, it’s a good chance that your state will require you to carry Workers' Compensation Coverage.
STEP 8: Define your brand
Your brand is what your company stands for, as well as how your business is perceived by the public. A strong brand will help your business stand out from competitors.
If you aren't feeling confident about designing your small business logo, then check out our Design Guides for Beginners, we'll give you helpful tips and advice for creating the best unique logo for your business.
How to promote & market an Ecommerce Distribution Business
The marketing channels you use should match your target market’s interests. Your business plan research should uncover their most-used social media platforms, online forums, and favorite printed publications. Use this information to create relevant, SEO-driven content that provides solutions for their pain points. OptinMonster provides an exhaustive list of social media tools that can help you reach your target audience via social media.
How to keep customers coming back
As a business owner, it is important to remember that happy customers are your greatest advertising tool. To ensure every client walks away happy, it’s important to maintain a level of transparency and keep the line of communication open at all times. Orders should be filled promptly and delivered to the customer as promised. When a new product comes on the market, notify customers through email blasts. This will serve as a great reminder that you are there and ready to serve their needs.
Still unsure about what kind of business you want to start? Check out the latest Small Business Trends to help inspire you.
STEP 9: Create your business website
After defining your brand and creating your logo the next step is to create a website for your business.
While creating a website is an essential step, some may fear that it’s out of their reach because they don’t have any website-building experience. While this may have been a reasonable fear back in 2015, web technology has seen huge advancements in the past few years that makes the lives of small business owners much simpler.
Here are the main reasons why you shouldn’t delay building your website:
- All legitimate businesses have websites - full stop. The size or industry of your business does not matter when it comes to getting your business online.
- Social media accounts like Facebook pages or LinkedIn business profiles are not a replacement for a business website that you own.
- Website builder tools like the GoDaddy Website Builder have made creating a basic website extremely simple. You don’t need to hire a web developer or designer to create a website that you can be proud of.
Using our website building guides, the process will be simple and painless and shouldn’t take you any longer than 2-3 hours to complete.
STEP 10: Set up your business phone system
Getting a phone set up for your business is one of the best ways to help keep your personal life and business life separate and private. That’s not the only benefit; it also helps you make your business more automated, gives your business legitimacy, and makes it easier for potential customers to find and contact you.
There are many services available to entrepreneurs who want to set up a business phone system. We’ve reviewed the top companies and rated them based on price, features, and ease of use.
Recommended: Find the best phone system for your business; check out our review of the Best Business Phone Systems 2021.
Start An Ecommerce Distribution Business In Your State
Select your state below for an in-depth guide on completing each of these steps in your home state.
Is this Business Right For You?
Have you long dreamed of being your own boss, setting the hours that best fit your lifestyle? Do you have a retail or ecommerce background? Do you have an innate ability to understand what consumers need and what strategies are best employed to reach those consumers? If so, launching an ecommerce distribution business may be the perfect fit for you.
Want to know if you are cut out to be an entrepreneur?
Take our Entrepreneurship Quiz to find out!
What happens during a typical day at an Ecommerce Distribution Business?
The specific duties of each ecommerce distribution business vary depending on the needs of the client and the niche market they serve. When not marketing your own business and presenting sales pitches to potential new clients, your days will be spent handling some (or all) of the following:
- Packaging products for order fulfillment
- Adding products to the online shop, ensuring quality photos and product descriptions
- Managing inventory — this includes receiving, storing, and inputting into your management software.
- Performing warehouse and inventory audits
- Reordering more products when necessary
- Arranging for the transport/shipping of products
- Marketing — for both your business and those you distribute for
What are some skills and experiences that will help you build a successful Ecommerce Distribution Business?
Launching and managing a successful distribution business requires a number of skills. Since your profits are directly tied to inventory costs, you will need to purchase goods at the lowest rate possible. Negotiating skills will come in handy when working with manufacturers to settle on a price that brings in a profit for both parties involved. When negotiating prices, it’s a good idea to know the product, what consumers are willing to pay, and what your competitors are charging for the same product. Strong customer service and communication skills would also prove beneficial.
Your main role as a distributor is finding goods and delivering them to customers. You must collect the products, store them, and transport them for delivery once an order has been placed. Since logistics is a major part of your job, a background in logistics management would prove invaluable.
As an ecommerce distributor, you must also possess strong customer service and marketing skills. This will help you reach the right consumers as well as land new clients and retain current accounts.
What is the growth potential for an Ecommerce Distribution Business?
The distribution industry generates a revenue of over $3 trillion annually in the United States alone. While there are approximately 300,000 distributors, market demand is at an all-time high, leaving plenty of opportunity for new entrants into the marketplace.
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Take the Next Step
Find a business mentor
One of the greatest resources an entrepreneur can have is quality mentorship. As you start planning your business, connect with a free business resource near you to get the help you need.
Having a support network in place to turn to during tough times is a major factor of success for new business owners.
Learn from other business owners
Want to learn more about starting a business from entrepreneurs themselves? Visit Startup Savant’s startup founder series to gain entrepreneurial insights, lessons, and advice from founders themselves.
Resources to Help Women in Business
There are many resources out there specifically for women entrepreneurs. We’ve gathered necessary and useful information to help you succeed both professionally and personally:
If you’re a woman looking for some guidance in entrepreneurship, check out this great new series Women in Business created by the women of our partner Startup Savant.
What are some insider tips for jump starting an Ecommerce Distribution Business?
As a distributor, the success of your business is reliant on maintaining an accurate stock of inventory. For this reason, industry leaders recommend investing in an inventory management system. This will not only help you keep an accurate count, but it will also notify you when stock is running low and provide valuable data regarding sales trends and market needs.
If your business model calls for you to distribute to larger corporations, you may need to offer your buyer’s credit. Since available cash flow will directly affect your ability to fulfill future orders, be sure to set a credit limit, both in terms of time and money. Clearly communicate the credit terms to your buyers, and do not waver from these terms.
How and when to build a team
As an ecommerce distributor, it is not the size of your team that is important but rather the quality. When it’s time to start hiring new employees, make sure each worker is adaptable and understands what will be expected of them. They should be well-versed in the products you distribute and understand your clients’ general pain points and basic needs. Standard operating procedures should be in place, and each employee should be appropriately trained to ensure quality customer service.