Distribution businesses play a crucial role in the supply chain, acting as the bridge between manufacturers and end customers. A distribution business involves the process of selling and delivering products to retailers or end-users. In this article, we will discuss the different types of distribution businesses, their advantages and disadvantages, and the key factors to consider when starting a distribution business.

Types of Distribution Business:

There are several types of distribution businesses, each with its own advantages and disadvantages. Here are some of the most common types of distribution businesses:

Wholesalers: Wholesalers buy products in bulk from manufacturers and then sell them to retailers or other businesses. Wholesalers typically buy products at a discounted price and sell them at a markup, making a profit on the difference.

Distributors: Distributors are similar to wholesalers, but they often have a more exclusive agreement with manufacturers. They may also provide additional services such as storage, packaging, and shipping.

Drop-shippers: Drop-shippers do not hold any inventory themselves. Instead, they act as a middleman between the manufacturer and the end customer. When a customer orders a product, the drop-shipper purchases the product from the manufacturer and has it shipped directly to the customer.

Retailers: Retailers are businesses that sell products directly to end customers. They may purchase products from wholesalers, distributors, or drop-shippers.

Advantages and Disadvantages of Distribution Business:

There are several advantages and disadvantages to starting a distribution business. Here are some of the most significant advantages:

Low Start-up Costs: Compared to other types of businesses, starting a distribution business can have relatively low start-up costs. You can start with a small inventory and grow your business over time.

Flexibility: Distribution businesses can be run from anywhere, as long as you have access to a reliable shipping and logistics network.

Low Overhead Costs: With the right business model, distribution businesses can have low overhead costs. You do not need to invest in a physical storefront, and you can manage your inventory and operations online.

Profit Margins: Depending on the products you distribute, distribution businesses can have high profit margins. By buying products at a discounted price and selling them at a markup, you can make a significant profit.

Here are some of the most significant disadvantages:

Competition: The distribution business can be highly competitive, with many other businesses vying for the same customers and products.

Logistics: Managing the logistics of a distribution business can be complex and time-consuming. You will need to ensure that products are delivered on time and that your inventory is managed effectively

Inventory Management: Inventory management can be challenging, particularly if you are working with perishable or seasonal products. You will need to ensure that you have enough inventory to meet demand while also avoiding excess inventory that can lead to storage and waste costs.

Payment Terms: Depending on the products you distribute, you may have to deal with long payment terms. This can impact your cash flow and make it challenging to manage your finances effectively.

Key Factors to Consider When Starting a Distribution Business:

If you are considering starting a distribution business, here are some key factors to consider:

Product Selection: Choose products that you are passionate about and that have a high demand in the market. Consider the competition, profit margins, and seasonality of the products.

Suppliers: Choose reliable suppliers that offer high-quality products at a reasonable price. Consider the shipping and delivery times, payment terms, and the level of customer service offered by the supplier.

Logistics: Develop a reliable logistics network that can deliver products on time and at a reasonable cost.

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