Hey there, congratulations on your new distribution business and our best wishes to you! Over the years we have worked with several distribution businesses across India, specifically with distributors of FMCG, F&B, Telecom, Hardware, Electrical and Industrial products. We learnt a lot about challenges faced, strategies employed and business aspects focused on by them while growing their distribution business.
We would like to share the key learning out of those with you. Ensuring your attention to these from the beginning will help you set a solid foundation for your business to grow upon.
1. Have a Strong Back-Office.
As shared by one of the key telecom distributors in Mumbai, “To reach a 1000 Crore turnover, having a strong back-office is a must.” Your Back-office is the control centre for all your operations. It’s powered by people and technology. There should be well-defined processes and systems in place, enforced by using the right software so that you get a complete picture of what’s going on in your business.
2. Hire the right people - Not the best people.
While hiring for your accounts, sales, warehousing or delivery roles, you might hire overqualified people. You may hire an MBA to do your field sales. But that can be a mistake. The MBA might not find the job rewarding and won't be motivated. Instead, you would be better off hiring just a 12th pass or graduate and giving them sales-target based incentives. As Simon Sinek, a motivational speaker says, “You don’t hire for skills. You hire for attitude. You can always teach skills.”
3. Recognize and Incentivise your top customers.
Most of your revenues and profits will come from a set of top customers. The top customers can be identified based on higher sales and timely payments. Recognizing them early and incentivizing them will help your business in the long run. You can build strong relations by offering them preferential rates, deals, deliveries and credit periods. Give them more margins to earn, so that they push your product.
4. Keep a tab on outstanding in the market.
Dumping goods in the market is easy. Nobody says “No” to goods on credit and return option. But it is essential for you to keep a tab on credit in the market. Timely follow up for payments and collecting the dues is crucial. Categorize your customers into levels and decide how much outstanding can you risk on a customer in a given category. In the early stage, Rs.10000 credit to 10 customers is just 1.0 Lakh, but as the number of customers increases to 100, it becomes Rs. 1.0 Crore of credit outstanding. Control your credit in the market from the start.
5. Customer Service & Speedy Fulfillment is important.
Gone are those days when the price used to be the only differentiating factor. Customers are now looking for better services both in terms of cost and convenience. So make sure you prioritize customer service as well while offering the best price. Contact them regularly to find out if they need replenishment of stocks and keep them updated on the latest deals and opportunities. Digitizing your processes like ordering, fulfillment will make those faster and reliable, which helps in earning customer satisfaction and trust.
6. Be Careful while trusting - Especially with payments & deliveries.
There can be many wrongs and foul-plays related to payments & deliveries. Most of your customers and staff would be good, but you need to keep an eye out for the few who are not. Some typical cases are
- Customers making false payment promises & disappearing.
- Customers handing you cheques which bounce and don’t get cleared.
- Customers delaying payments and wasting time & money of your collection staff.
- Staff not reporting payments received in cash to back-offices.
- Staff not informing customers of their credit-notes, receiving payments and then pocketing the same.
- Staff loading extra or different products and then selling them in the market.
These are just a few examples and there can be many other cases. So trust people, as without it you can’t do business, but don’t do so blindly and keep an eye. Better, set up such systems and processes which don’t require you to trust.
7. Keep track of Inventory.
Inventory tracking is a common thing to miss and usually, it doesn't get much attention. But ignoring it can lead to losses in business. If you don’t do frequent inventory audits and are not regularly aware of inventory, it can lead to several problems like stock pilferage, expired stock, low inventory of profit-making stocks, accumulation of non-selling stocks, mismanaged warehouse, thefts and other issues.
8. Know your numbers - Revenue, Cost, Margins, Profits.
It’s essential to measure and look at your numbers regularly. In the flow of everyday business, it’s easy to misjudge, if you are making real profit or not. Sometimes big turnover fools you into thinking that you may be making money. You must look into real numbers and reports to determine the true picture so as to ensure that you are selling at right prices; keeping good margins; aware of any hidden costs; informed of net profit after all costs and taxes.
9. Maintain Compliance - Taxes and Returns on time.
Legal and regulatory compliance is one thing you don’t want to neglect. Pay your taxes, like Goods and Services Tax(GST), Professional Tax (PT), Tax deduction at source (TDS), Income Tax(IT), etc regularly and get their returns filed. You want to devote your energy in growing the business rather than solving non-compliance entanglements. Just to give you an example, delaying GST payment can lead to cancellation of your GST number, which can lead to your customers refusing to pay you, further leading to cash flow problems. You don’t want to get into all that. Find out more about all you need to do about GST as a New Distributor.
10. Focus on bigger things - Leverage technology to handle small stuff.
In the distribution business, some things will matter more than most things, some work will be there which only you can do, and a lot of work will be there which can be avoided. So you need to focus on things which matter more like setting up processes, reviewing numbers, doing audits or hiring the right staff. You need to delegate work like billings, packing or dispatching. And most importantly you need to use technology to automate a lot of work.
Certainly there are a lot more things to be taken care of. These are just the key things for the success of a distribution business from our perspective. Let us know if you find these useful and do share your learnings as well.