How to Start an Ecommerce Distribution Business

Start an Ecommerce Distribution Business by following these 10 steps:

1. Plan your Ecommerce Distribution Business
2. Form your Ecommerce Distribution Business into a Legal Entity
3. Register your Ecommerce Distribution Business for Taxes
4. Open a Business Bank Account & Credit Card
5. Set up Accounting for your Ecommerce Distribution Business
6. Get the Necessary Permits & Licenses for your Ecommerce Distribution Business
7. Get Ecommerce Distribution Business Insurance
8. Define your Ecommerce Distribution Business Brand
9. Create your Ecommerce Distribution Business Website
10. Set up your Business Phone System

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.

Exploring your options? Check out other small business ideas.

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 will you name your business?
• What are the startup and ongoing costs?
• Who is your target market?
• How much can you charge customers?

Luckily we have done a lot of this research for you.

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.

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
• Storage/workspace
• Inventory replenishment
• Shipping
• Marketing and sales
• Insurance and licenses
• Payroll
• 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.

STEP 2: Form a legal entity

The most common business structure types are the sole proprietorship, partnership, limited liability company (LLC), and corporation.

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.

You can form an LLC yourself and pay only the minimal state LLC costs or hire one of the Best LLC Services for a small, additional fee.

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!

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.

Open a business bank account

Besides being a requirement when applying for business loans, opening a business bank account:

• Separates your personal assets from your company's assets, which is necessary for personal asset protection.
• Makes accounting and tax filing easier.

Get a business credit card

Getting a business credit card helps you:

• Separate personal and business expenses by putting your business' expenses all in one place.
• Build your company's credit history, which can be useful to raise money 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.

Make LLC accounting easy with our LLC Expenses Cheat Sheet.

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.

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.

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.

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.