subject: Expand Your Business via Outsourcing Distribution [print this page] Expand Your Business via Outsourcing Distribution
Know the advantages and benefits of utilizing distribution channels
Non-entrepreneurs would often think that the decision to take the leap into entrepreneurship is a one-time thing. But in reality, it's a decision entrepreneur constantly ask themselves. It's a question about risk and growth. It's a question that exists even after you started the business there will still be plenty of strategic decisions to make.
You'll find yourself asking this question when you consider outsourcing your service a concern most often encountered by small and medium sized manufacturers. What most people don't realize is that by outsourcing distribution, your business can actually grow exponentially.
WHAT ARE THE ADVANTAGES OF OUTSOURCING DISTRIBUTION?
Reduces selling cost: One of the main reasons for outsourcing distribution is to reduce your selling cost. Instead of paying for the whole sales chain yourself, this is divided among the other products of the distributor. Thus, they can afford to charge you less, as it's divided among their principals (clients). Selling costs can easily go down by 30 percent compared with doing it yourself.
Minimized fixed cost: in majority of distributorship contracts, distribution and selling fees are charged based on total sales. This means that instead of having fixed costs monthly (for your sales manager, sales people, transportation, etc.), you will simply be charged a percentage of sales. This is extremely beneficial because if you have no sales, you have no cost.
Business risk is passed on to the distributor: Risks that follow inventory are passes on to the distributor, as well as managing accounts receivables from multiple resellers.
Freedom to focus on your brand: Since you have an expert handling your sales and distribution, you have the time to focus on building your brand and making you product better.
Local knowledge by distributor: Most distributors since it's their core business would have localized knowledge or insider's secrets of a particular channel. This is something that can benefit the expansion of your brand.
HOW DO YOU CHOOSE A DISTRIBUTOR?
In choosing your distributor, ask yourself the following questions:
Does the distributor's expertise match your placement strategy (where you want to sell your products)? Can their existing coverage and penetration capacity handle your sales targets? Do they serve the customer segment that you want to sell to?
Do they have the financial capability to support their distribution business and growth potential? Can they pay you for your inventory?
How involved are the owners? Since most SMEs start with products that are relatively unknown, it would be your benefit if the owner of the distribution company is very active, because in this case you are more assured that they'll be more hand-on and take care of your product.
Do they have the organizational capability to meet your distribution objectives? How many stores need to be reached to meet your target? Do they have the right amount of salespeople, size of warehouse, vehicles, and support system (like accounting system and administrative support)?
